International competitiveness of selected Indian Industries - an empirical analysis

Abstract

Rationale and Objectives. The recent inflow and projections of foreign investments into India indicate that the international investing community views India as a, potentially high growth economy, whose industries are becoming increasingly "internationally competitive. Recent studies have shown that after stagnation during the 1960s and 1970s, there has been a turnaround in the Indian industrial sector during the 1980s. In international trade, however, india was completely left out of the virtual revolution in the trade in manufactured goods that commenced during the mid 1950s. The countries that took advantage of this revolution viz. The Asian Tigers and other South East Asian countries, some of whom were as underdeveloped as India was then, have transformed their economies into high and middle income industrial economies. India's share in world trade dropped from over 2% in the 1950s to under 0.5% in the 1980s. It has improved marginally since then. The objective of this study is to analyze the changing competitiveness of some of India's important exporting industries vis-a-vis her main competitor countries. 2. Sample and Methodology The study focuses on four industries viz: Textiles, Wearing Apparels, Leather Products and Footwear. These four industries together, account for more than 50% of our manufactured exports. The competing countries studied are Hong Kong, Korea, Indonesia, Malaysia, Singapore and Turkey. The methodology involves an analysis of factor productivity change and thereby the dynamic comparative advantage. Historical annual data for the period 1979 through 1990 were analyzed to obtain estimates of the three main components of price competitiveness viz . changes in total factor productivity, changes in terns of trade, and changes in factor costs.

3. Findings a) Indonesia ranks the highest in terms of growth rates of exports, domestic production and a comprehensive measure of competitiveness in all four industries. If the other countries are to be ranked by the same criteria across the four industries, Korea would rank second followed by Turkey. India would occupy fourth position followed by Malaysia, Hong Kong and Singapore. However, this finding is unlikely to hold, if industries other than these four are included in the analysis. b) In terms of the comprehensive measure alone, for textiles, Indonesia assumes first position, Malaysia second and India fourth. In apparels, India is in third position after Indonesia and Turkey. In leather, India is first, and in footwear it is second only to Indonesia. C) In terms of export growth alone, in textiles, Indonesia and Honq Kong occupy first and second position respectively. India is a poor fifth. In apparels, Turkey and Indonesia occupy first and second position and India ranks the last. In leather, Hong Kong and Indonesia are first and second, and India is in sixth position. In footwear, Indonesia and Hong Kong are in first and second position, and India, is fourth. d) In terms of domestic production growth alone, in textiles, Indonesia and Korea are the top two with India in the sixth position. In apparels, Indonesia and Turkey are first and second with India in fourth position. In leather, India is third after Korea and Indonesia. In footwear, India is second only to Korea.

India occupies fairly good position with respect to all four industries. Further, our performance can be improved through tapping export potentials. These inferences are, however, subject to some distortions, due to poor base levels of exports/domestic production in Indonesia and Turkey, in contrast to Hong Kong and Korea.

4. Implications One of the factors responsible for India's poor export performance was the overvalued rupee. This has since been corrected but a regular monitoring of the exchange rate is called for. Textiles is an old industry in India, and our performance in this industry could be improved through ensuring good growth rate in productivity. In Apparels, India tops the list in terms of TFP growth but our rank goes down due to poor export performance. Leather and Footwear are clearly our strength areas but we should not be complacent as we still have a long way to go. The success of Singapore and Hong Kong is mainly due to re export and this offers great opportunities for us.