This paper analyses India’s performance in international trade in goods with a few important economies in South and East Asia, viz., China, Hong Kong SAR (China), Taiwan (China), Indonesia, Republic of Korea, Malaysia, Philippines, Singapore and Thailand based on certain trade indicators during the years 1980, 1990, 2000, 2001, 2002 and 2003. It is observed that performance by India in merchandise trade did not compare well with these economies. However, the study reveals that India managed a less concentrated trade structure in products exported than many of the economies under study except the USA, China, Hong Kong SAR (China) and Indonesia. On the other hand, a more concentrated trade structure signified India’s imports trade. Also, merchandise trade by India is found below expected levels with many Asian economies under study.

JEL Classification : Classification: F10, F14, F19

Keywords : International Trade, Trade indicator

One main objective of the Foreign Trade Policy (2004-09) announced by the Government of India is to double the country’s percentage share of global merchandise trade within the next five years. In 2003, India accounted for around 0.75 per cent of world exports and 0.93 per cent of world imports. In 1980 these shares were 0.42 per cent in case of exports and 0.72 per cent in case of imports.

During the same period a few economies in South and East Asia, viz., China, Hong Kong SAR (China), Taiwan (China), Republic

* Assistant Adviser, Balance of Payments Statistics Division (BPSD), Department of Statistical Analysis & Computer Services (DESACS), Reserve Bank of India. The views expressed in this article are personal and not necessarily represent the views of the institution to which the author belongs.

of Korea, Malaysia, Philippines, Singapore and Thailand almost doubled or more than doubled their exports. The four Newly-Industrializing Countries (NICs) of East Asia [Hong Kong SAR (China), Singapore, Republic of Korea and Taiwan (China)] together with the Asean-4 (Indonesia, Malaysia, Philippines and Thailand) and China accounted for almost 80 per cent of the increase in the value of manufactures exported by all developing countries from 1980 to 1990 (Maizels). Except Hong Kong SAR (China) and Philippines all the other South and East Asian economies mentioned above had continuous trade surplus in all the years from 2000 to 2003. Strong economic performance in East Asia was driven, to a considerable extent, by robust export growth. Percentage share of exports to GDP of each of the economies mentioned above rose above thirty per cent in 2003 against a world average of around 21 per cent and around 10 per cent for India.

A question of considerable interest is how does global trade in goods by India compares with the emerging economies in South and East Asia mentioned above. A comparative analysis in that direction is presented in this paper. The analysis has been done based on certain important trade indicators as discussed in Section I. Section II describes the data used while Section III presents the results of the analysis. Section IV concludes.

The analysis in this paper has been done based on certain important trade indicators viz., share in world trade, growth, trade balance, percentage share to GDP, market concentration indices on commodities traded, country-wise distribution of exports and imports, terms of trade indices [viz. ‘net barter terms of trade’ (NBTT) and the income terms of trade’ (ITT)] and trade intensity indices. Indicators on share in world trade, growth, trade balance, and share to GDP are quite straightforward in concept. However, a discussion may be helpful on indices on ‘market concentration’, ‘terms of trade’ and ‘trade intensity’ and this is presented below.

Market concentration index measures the degree to which a country’s exports is dispersed over various products and is called index of market concentration or Herfindahl-Hirschman index. The index reveals the degree of market concentration and is computed according to the following formula:

Terms of trade of a country refers to two concepts viz. the ‘net barter terms of trade (NBTT)’ and the ‘income terms of trade (ITT)’. When the phrase ‘terms of trade’ is used without qualification it refers to the NBTT concept. The terms of trade measures the relative change in export and import prices. It is defined as percentage ratio of the export unit value index to the import unit value index. Changes in the relative prices of exports and imports are important factors in influencing the values of exports and imports and the balance of payments of a country. A rising terms of trade results if import prices are rising slower than export prices. Conversely, if import prices are rising faster than export prices, it results in a fall in the terms of trade. Increase in the terms of trade index number is an encouraging movement, as a unit of exports will buy more imports. For the same reason, decline in the terms of trade index is described as an adverse movement in trade (a unit of exports will buy fewer imports).

One limitation of NBTT is that it does not take into account the influence of changes in trade volumes. Due to this fact, the NBTT can not completely indicate the impact of changing market conditions on the trade balance of a country. This limitation is overcome by the second concept viz. ‘the income terms of trade’ (ITT). ITT is defined as the NBTT multiplied by export volume. An alternative interpretation is that the ITT measures the purchasing power of exports in terms of importable goods and services.

Change in a country’s terms of trade directly affects the balance of payments position of the country. Any adverse change will worsen a country’s trade balance. In order to restore balance it will need to export more and/or import less. Substantial cut in imports may seriously hamper the economic growth of many developing countries as they depend heavily on imported capital equipment. On the other hand, a rise in a country’s NBTT, or in its ITT, would allow it to expand imports, including imports of capital equipment, and thus help the country for a continuous or accelerated economic growth.

The trade intensity index (TII) is used to determine whether the value of trade between two countries is greater or smaller than would be expected on the basis of their importance in world trade. It is defined as the share of one country’s exports going to a partner divided by the share of world exports going to the same partner. It is calculated as:

where xij is the value of country i’s exports to country j, xwj is the value of world exports to country j, Xit is country i’s total exports and Xwt is total world exports. In this formula, xwj and Xwt will also include xij and Xit. The formula given at (1) above may be slightly modified using Rest of the World’s (RoW) exports instead of world exports as shown below (RoW is defined as World excluding the country ‘i’):

where x wj = Rest of the World’ s exports to country j = xwj- xij and X wt = Rest of the World’ s exports = Xwt - Xit

We define T ij as modified TII. For countries with insignificant share in world exports, values of Tij and T ij will remain almost same. The difference may be significant for countries with a significant share in world exports.

Value of the index (Tij or Tij) will be one for an expected bilateral trade flow. Share of one country’s exports to its partner should be at least equal to the share of world exports to the same partner for an expected bilateral trade flow. Otherwise, it means that the country fails to exploit the market in its partner country and there is scope for expansion of its exports trade in the partner country. An index of more (less) than one indicates a bilateral trade flow that is larger (smaller) than expected, given the partner country’s importance in world trade.

The analysis has been done based on the trade data published in the United Nations Conference on Trade and Development (UNCTAD) Handbook of Statistics (2004) and IMF’s Direction of Trade Statistics (DTS) (1997 and 2004). In both the publications, exports data are published as per free on board (f.o.b.) value while imports data are published as per ‘cost, insurance and freight’ (c.i.f.) value. Most of the data are published country-wise as well as various group wise. Data are available at the highest aggregate level i.e., the world as a whole. In the Handbook (2004), data are also presented in three broad groups viz. ‘Developed economies’, ‘South East Europe (SEA) and Commonwealth of Independent States (CIS)’ and ‘Developing economies’. These three groups are mutually exclusive and combined together present the world total. India, China and all the East Asian economies mentioned earlier are in the third group viz. ‘Developing economies’. Needless to mention that the USA and Japan are in the first group viz. ‘Developed economies’. Erstwhile USSR is in the second group viz. ‘SEA & CIS’.

This section presents the factual analysis based on the values of the indicators discussed above. Although the focus of this analysis is on the trade performance of India vis-à-vis the South and East Asian economies mentioned above, values of the indicators are also presented for the USA and Japan, the two most important trade partners of the economies under study. Analysis is also presented for the three groups viz. ‘Developed economies’, ‘South East Europe (SEA) and Commonwealth of Independent States (CIS)’ and ‘Developing economies’ mentioned above wherever relevant. Values of indicators pertaining to growth, market concentration, distribution and terms of trade were readily available in the UNCTAD Handbook (2004). Indicators pertaining to share in world trade, percentage share to GDP and trade intensity indices were compiled using trade data available in the Handbook (2004), IMF’s DTS(2004, 1997) and the UNCTAD website (www.unctad.org). Data used for compilation were all in US dollar.

Table 1 presents the share in world trade by the economies under study. Share of Developed Economies in exports came down noticeably after 1990 and remained around 65 per cent during the years 2000 to 2003. Share of the South-East Europe & CIS economies too declined from 5.27 per cent in 1980 to around 2.68 per cent in 2000. The same, however, increased marginally in the subsequent years and remained around three per cent. During the period after 1990, Developing Economies have been able to exhibit a significant improvement in their exports. Share of these economies in world exports increased from 24.21 per cent in 1990 to around 32 per cent in 2000 and remained almost same in the subsequent three years. The noticeable improvement in the share of Developing Economies can be mainly attributed to the striking performance of the economies in the South and East Asia viz. China, Hong Kong SAR (China), Taiwan (China), Republic of Korea, Malaysia, Singapore and Thailand. Share of China in world exports increased from 1.78 per

cent in 1990 to 5.88 per cent in 2003 (Chart 1). During the same period, the share of the USA and Japan declined from 11.27 per cent and 8.24 per cent, respectively, in 1990 to 9.72 per cent and 6.34 per

cent, respectively, in 2003. During this period, share of India in world exports increased from around 0.51 per cent in 1990 to 0.75 per cent in 2003, substantially lower than many of its South and East Asian neighbours under study.

Share in world imports by Developing Economies also followed similar trends to that of exports during the period 1980 to 2003 (Table 2 and Chart 2). After 1990 share of these economies significantly went up, mostly because of the South and East Asian region. China increased its share in world imports from 1.48 per cent in 1990 to 5.42 per cent in 2003. Share of India in world imports increased from 0.65 per cent in 1990 to only 0.93 per cent in 2003. As in case of exports, share in world imports by India did not rise much during the period under study. The share was found to be lower than all the economies under study except for Indonesia and Philippines. During the same period, the share

of the USA increased from 14.31 per cent to 17.14 per cent. However, share of Japan in world imports declined from 6.51 per cent in 1990 to 5.03 per cent in 2003. Share of South-East Europe and CIS economies in world imports trade also declined significantly after 1980 (from 5.17 per cent in 1980 to around 1.80 per cent in 2000) but made a turnaround in 2001.

One important observation regarding share in world trade by developed economies vis-à-vis developing economies is that the share of imports by the former, especially the USA, in world imports is found to be higher in the years under study than the same observed in case of exports (and the opposite is the observation for the other group).

Exports by the Developing Economies experienced rapid growth than that by the Developed Economies after 1990 except for the year 2000-01 (Table 3). During that year, there was a decline in exports by Developed as well as Developing Economies. The world trade in exports had a negative growth of around four per cent in that year. China and India were among the few countries that showed positive, although lower, growth in that year. Annual average growth rate of exports from India during the period under study stood above world average except during the year 2002-03. The growth was also higher than many economies under study after 1990.

As in the case of exports, developing economies experienced higher growth in world trade in imports than developed economies after 1990 except during the year 2000-01. During this year, there was negative growth in world trade in imports. China, however, managed an impressive growth in its import trade by around 8.2 per cent in that year. Barring 2000-01, imports by India grew impressively after 1990 and the growth was above the world average and above that of many other important economies.

Share of exports and imports of Developing Economies to their GDP (at current prices) went up significantly after 1990 and remained

very high in comparison to that of world ratio as well as to that of Developed Economies and ‘SE Europe and CIS’ economies (Table 5). Share of exports and imports trade to GDP is more than 100 per cent in case of Singapore and Hong Kong SAR (China) and around 100 per cent in case of Malaysia in exports. Philippines, China and Thailand are the other three countries under study which raised their shares of exports and imports to their GDP very significantly. Share of exports and imports to GDP in case of all the developing Asian economies under study except India remained substantially higher than that observed for the USA and Japan.

Developing economies and ‘S.E. Europe and CIS economies’ had trade surplus consecutively in the first four years of the new

millennium under study (Table 6). Developed Economies had trade deficit in all these years. Trade deficit as percentage of imports for the USA went up from 37.97 per cent in 2000 to 44.55 per cent in 2003. China and all the East Asian economies under study except Hong Kong SAR (China) and Philippines had trade surplus in these years. India had trade deficit in all these years and the same as percentage to imports declined in 2001 and 2002 but increased to 20.83 per cent in 2003. Trade deficit of India as percentage of imports also remained higher than the world average in all these years.

Table 7 presents trade balance as a per cent of GDP (at current prices). Developed Economies’ trade deficit to GDP ratio remained below two per cent. But, in the case of the USA, trade deficit as per cent of GDP increased from 1.13 per cent in 1980 to 5.29 per cent in 2003.

Table 8 furnishes the market concentration indices on exports and imports for commodities traded in the years 1992 and 2002, respectively. As noted earlier, the index value closer to one indicates higher market concentration which means higher impact on trade due to possible price fluctuations of specific products. Data in Table-8 show that merchandise trade of the Developing Economies has higher concentration than that of Developed Economies. The indices reveal very low market concentration of merchandise trade by the USA indicating a well diversified trade structure. In case of exports trade, China also shows very low concentration. In case of imports the same

is observed for Japan. Among other Asian economies under study, concentration indices on products traded increased significantly in the case of Hong Kong SAR (China), Republic of Korea, Malaysia, Philippines, Singapore and Taiwan (China).

Indices indicate that India’s exports were somewhat more diversified in 2002 in comparison to the position in 1992. In 2002, market concentration of India in products exported was lower than the world average as well to all other economies under study except USA, China, Hong Kong SAR (China) and Indonesia. However, in case of imports trade, degree of concentration increased in 2002 in comparison to 1992 and was higher than all the economies under study in 1992 and all economies except Malaysia and Philippines in 2002. High oil imports along with higher prices of oil might have increased the concentration in import trade for India.

Table 9 furnishes the percentage distribution of exports by main regions of destination for the years 1990, 1995, 2000 and 2003. Due to unspecified destinations, the total may not add to 100 per cent for some economies. It is observed that in case of all the Asian economies under study except China, share of exports to the Developing Economies in ‘Other Asia¹’ (Asia other than West Asia²) increased significantly and share of exports to the Developed Economies decreased with almost equal proportion after 1990. Similar change in direction of exports trade is also observed in case of the USA and Japan. In case of Hong Kong SAR (China), Philippines, Singapore and Thailand, the reduction in share of exports to Europe, the USA and Canada is more prominent. In case of Korea, the decrease in share is more prominent in case of exports to the USA, Canada and Japan. Share of exports to ‘Other Asia’ from China declined substantially from about 54 per cent in 1990 to around 33 per cent in 2003 but share of exports to Europe, the USA and Canada increased with almost equal proportion.