Trade liberalisation and export competitiveness of Indian manufacturing industries: some explanations

Abstract

India embraced open trade policy from 1990s onwards, following the Economic Reforms of 1991, by reducing import tariffs and opening up Indian markets to competition. The expectation from this reform was that the Indian industry would be more competitive. By mid 2000s, India was not only an open economy, however, it was on its way to effect across-the-board reductions/elimination of tariffs and other non-tariff barriers by formalising FTAs and CEPAs several prominent trade partners. Although, trade to GDP ratio has increased from 13% in 1990 to 27% in 2019-20, import dependence of India, especially on China has increased manifold. The paper has delved into the trade policy evolution that led India to open up and increase its presence in the global trade market. However, an industry level Revealed Comparative Advantage (RCA) analysis reveals that the loss in export competitiveness in six industries at NIC 4-digit level, since 2000-01 to 2017-18, retarded the growth potential in exports that India could have claimed with a phased opening up of trade. These industries were mainly in the textiles and apparel sector and gems and jewellery sector. The industry level factors such as lower productivity growth, higher unit labour costs and presence of low levels of technology are prominent factors that explain the export performance of India that we observe.