Major Items of Exports: Composition, Direction and Future Prospects11th February 2020
The composition of foreign trade is an important indicator of the pattern of trade developed by country. By the term composition of trade we mean the structural analysis involving the various types and the volume of various items of exports and imports of the country.
The composition of foreign trade of a country reflects on the diversification and specialization attained in its productive structure along with its rate of progress and structural changes. The country exporting more of primary products, viz., raw materials and importing finished manufacturing goods and capital goods can be branded as an underdeveloped country. With the passage of time a country attempts to change the pattern of trade in such a manner so that it can attain a better term of trade for its products by transforming the country from a primary producing one to a producer of finished manufactured products.
COMPOSITION OF EXPORTS IN INDIA
At the dawn of independence, the export basket of the country was mostly consisting of jute, tea and cotton textiles, which jointly contributed more than 50 per cent of the total exports earning of the country. In 1950-51, these three commodities contributed about 60 per cent of the total export earnings of the country. But this export of primary products is always disadvantageous as the terms of trade always goes against the exporter country in this respect due to its inelastic demand in international markets.
With the gradual diversification and growth of the industrial sector, India started to export various types of non-traditional products. Accordingly the share of jute, tea and cotton textiles in the total export earning of the country gradually declined to 31 per cent in 1970-71 and then considerably to 2.73 per cent in 2008-2009. But the share of machinery and engineering goods in India’s total export increased gradually from a mere 2.1 per cent in 1960-61 to 12.9 per cent in 1970-71 and stood at 25.8 per cent in 2008-2009.
Table shows the changes in the composition of export in India:
(i) Jute was one of the most important export items initially and contributed Rs. 213 crore, i.e., about 20 per cent of the total export earnings. But its share gradually declined to 12.4 per cent in 1970-71 and then to only 0.16 per cent in 2008-09.
(ii) Tea was second most important item of export which contributed Rs. 187 crore (18.7 per cent of total export earnings) in 1960-61. Its share declined gradually to 9.6 per cent in 1970-71 and then to 3.3 per cent in 1990-91 and about 0.31 per cent in 2008-2009.
(iii) The share of cotton fabrics in total export earning of the country also declined marginally from 8.7 per cent in 1960-61 to 6.4 per cent in 1990-91 and 2.25 per cent in 2008-09.
(iv) Export of handicrafts rose considerably from a mere Rs. 73 crore in 1970-71 to Rs. 1,33,465 crore in 2008-09 which constituted about 15.8 per cent of total export earning in 2008-09 and occupied third place.
(v) Export of readymade garments has also increased considerably from Rs. 29 crore in 1970- 71 to Rs. 50,294 crores in 2008-09 which constituted nearly 5.98 per cent of total export earnings in 2008-09 and occupied fourth place.
(vi) Exports of machinery and engineering goods rose substantially from a mere Rs. 22 crore in 1960-61 to Rs. 2,16,856 crore in 2008-09, which constituted about 25.8 per cent of total earning in 2008-2009. It occupied first place.
Moreover, in recent years (2008-09) the exports of some other articles also increased considerably which include leather and leather manufactures (Rs. 15,931 crore—5th place), chemicals and allied products (Rs. 85,697 crore—4th place), iron ore (Rs. 21,725 crore) etc.
Again the exports of the country have been broadly classified into five groups:
(i) Agriculture and allied products
(ii) Ores and minerals
(iii) Manufactured goods
(iv) Mineral fuels and lubricants
The table shows that in 1970-71 total value of export was Rs. 1,535 crore and the share of the above five groups was 31.7 per cent, 10.7 per cent, 50.2 per cent, 0.84 per cent and 6.5 per cent respectively. Again in 2008-2009, the share of these five groups in the country’s export trade changed to 9.2 per cent, 4.2 per cent, 67.6 per cent, 15.1 per cent and 4.03 per cent respectively
THE DIRECTION OF EXPORT OR INDIA’S FOREIGN TRADE
Direction of foreign trade means the countries to which India exports its goods and the countries from which it imports. Thus direction consists of destination of exports and sources of our imports. Prior to our Independence when India was under British rule, much of our trade was done with Britain.
Therefore, UK used to hold the first position in India’s foreign trade. However, after Independence, new trade relationships were established. Now USA has emerged as the most important trading partner followed by Germany, Japan and UK. India is also making efforts to increase the exports to other countries also the direction of India’s exports and imports.
Share of major destinations of India’s exports and sources of imports during 2009-10 (April-September) are given in figure respectively:
During the period 2009-10 (April-September), the share of Asia and ASEAN region comprising South Asia, East Asia, Mid-Eastern and Gulf countries accounted for 55.0 per cent of India’s total exports. The share of Europe and America in India’s exports stood at 21.4 per cent and 15.3 per cent respectively of which EU countries (27) comprises 20.0 per cent. During the period United Arab Emirates (14.4 per cent) has been the most important country of export destination followed by U.S.A. (11.5 per cent), China (5.1 per cent), Hong Kong (4.5 per cent), Singapore (4.3 per cent), Netherlands (3.7 per cent), U.K. (3.7 per cent), Germany (3.1 per cent), Saudi Arabia (2.7 per cent) and Belgium (2.1 per cent).
FUTURE PROSPECTS OF TRADE
(1) Open International Rules
In the most optimistic scenario, countries come together to cooperate, and trade flows move easily across borders. Major economies jointly commit to address points of conflict and collaborate to revitalize the WTO through ‘plurilateral’ negotiations, with significant contributions from both advanced and larger emerging economies. The global agenda is daunting but action is taken on major issues: modernizing trade rules; minimizing distortions created by unfair subsidies; governing digital trade; addressing unresolved issues in agriculture and services; strengthening the WTO’s monitoring and dispute settlement functions.
Public and private stakeholders also collaborate to strengthen mechanisms for investment governance across different international platforms. Likewise, trade policymakers build cooperative mechanisms with other policy communities on relevant issues such as data flows, cybersecurity and the environment, laying coherent global governance foundations for innovation, growth and productivity gains.
(2) Competing coalitions
Here, countries cooperate, but much of it is shaped by emerging deep structural rifts over the role of the state in governing data flows, investment and advanced industrial technology that holds national security applications. Amidst these differences, trade and investment flows are directed by political intervention rather than price signals, and pressure comes to bear on multinationals to restructure and localize value chains.
It becomes impossible to make progress within the WTO and multilateral governance is supplanted by closed regional blocs. Heightened concerns over the geopolitical and security implications of investment result in the bifurcation of investment flows (China versus the US, the EU and Japan). The movement of information across borders is also subject to divergent governance regimes.
Some regions – such as sub-Saharan Africa, South-East Asia and Latin America – and global businesses become caught in between different spheres of influence. In a zero-sum dynamic, individual countries come under pressure to lean towards one bloc over another, with negative repercussions for geopolitical stability, economic development and global governance.
(3) Technological Disruption
In the third scenario, countries act unilaterally rather than cooperatively, but technological innovation races ahead of regulation. A borderless world is created for some, while others face wide-spread uncertainty and inefficiencies. Firm-led disruption creates pockets of radical innovation with the potential for winner-take-all profits. Small and medium sized enterprises, however, may become disadvantaged by high barriers to entry in some technologies and greater fragmentation in the global economy.
While first-mover benefits in any given industry might be out-sized, these advantages combined with the lack of strong global intellectual property (IP) protection norms generates incentives for theft and other forms of economic espionage. Fragmented regulatory frameworks for data flow governance raise cyber security risks and costs.
Investment flows that are dependent on long-term predictability are likely to be dampened. Small businesses and consumers in weaker economies might lose access to the latest technologies and services. Conflict between governments may also increase. Without multilateral options for rules-based dispute resolution, differences will be settled on power considerations, generating yet more uncertainty and higher business costs.
(4) Sovereignty First
In this worst-case scenario, unilateral action and a high frequency of economic conflict leads to a normalization of trade wars between major economies. Trade and investment issues become political weapons in broader geopolitical competition. The uncertainty and instability associated with entrenched economic conflict drains investment flows and business confidence. Without investment and facing high barriers to knowledge exchange, firms cannot innovate. Deep disruptions occur in global value chains, potentially leading to reshoring or deglobalization.
The global economy slides into protracted decline not seen since the Great Depression, creating major domestic challenges for most countries. These challenges include higher costs for consumers and rising unemployment, as well as domestic unrest. As major powers turn inwards to deal with domestic crises, populist and protectionist sentiments drive up the risks of international conflict. Limited options for orderly dispute resolution at the international level deepen the risks of long-lasting economic decline.
While these scenarios have been drawn in stark terms to sharpen the risks and trade-offs involved, there is an urgent need to reflect on potential consequences in each. We need global leadership to stop a potential slide into a global economic downturn that might take generations to recover from.