## Make in India: Which Exports Can Drive the Next Wave of Growth?

_IMF Blog, May 5, 2016_

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## Bibliographic details
- Authors: Rahul Anand, Kalpana Kochhar, Saurabh Mishra
- Published: May 5, 2016

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### Comparative advantage and export structure
- India’s expansion of exports of services between 1990 and 2013 has been described as “nothing short of spectacular,” placing India on par with the world’s high-income economies in terms of service-product sophistication and as a share of total exports.
- At 32 percent, the share of services in total exports is now more than double the average for emerging markets (EMs) and exceeds that of many advanced-income economies.
- The share of goods exports in total exports declined from nearly 80 percent in 1990 to 67 percent in 2013.
- India’s rapid growth in service exports is driven by modern services (products that can be stored and traded digitally).
  - Exports of modern services account for nearly 70 percent of India’s total commercial-services exports, double the average for emerging markets.
- India’s manufacturing exports show mixed signals:
  - Manufacturing exports as a share of total goods exports rose from 58 to 64 percent.
  - However, India’s product quality in manufacturing trails that of both China and other EMs.
- Destination markets have shifted:
  - Exports moved from the European Union and the United States toward emerging and developing economies.
  - East Asia and the Middle East have emerged as the top two destination markets.

### Implications for structural transformation and growth
- Goods differ in productivity; development requires not only producing more but introducing new, more sophisticated products.
- Revealed comparative advantage influences how export baskets expand:
  - A country has revealed comparative advantage when the share of a given product in a country’s total exports is larger than the share of that product in total global exports.
  - India tends to add products closely related to those already manufactured (example: existing comparative advantage in textiles leads to growth in related clusters such as fabrics and garment technology).
  - Emerging comparative advantage in research and development could lead to expansion of other high-value exports of modern services.

### Key findings and statistics
- Timeframe emphasized: 1990 to 2013.
- Services share of total exports: 32 percent.
- Goods share of total exports: decline from nearly 80 percent in 1990 to 67 percent in 2013.
- Modern services share of commercial-services exports: nearly 70 percent.
- Manufacturing exports as a share of total goods exports: increased from 58 to 64 percent.
- Comparative performance: India’s modern services sophistication is comparable to high-income economies; manufacturing product quality lags China and other EMs.
- Market shift: Increased orientation toward East Asia and the Middle East.
- Illustrative comparison: California’s population is described as “barely 3 percent of India” while having GDP “very similar to India,” highlighting the role of concentrated, specialized export hubs.

### Policy recommendations and priority actions
- Increase the value and quality of high- and medium-tech manufactured exports (avoid focus on low-skill or low-tech products that face incumbency disadvantage relative to lower-cost producers).
- Diversify services that underpin the modern manufacturing supply chain and capitalize on emerging comparative advantage in:
  - Aerospace
  - Pharmaceuticals
  - Chemical and mechanical-engineering research and development
- Expand exports to new markets, especially South Asian neighbors.
- Optimize policies to promote exports by:
  - Reducing trade costs
  - Liberalizing foreign direct investment rules
  - Improving urban infrastructure
  - Developing labor’s technological skills and future market flexibility
  - Fostering innovation and entrepreneurship to enable higher-productivity activities
- Encourage the development of concentrated, specialized hubs of exports (analogous to the California example) through an enabling environment for openness and creative inventions to help accelerate convergence.

*Rahul Anand, Kalpana Kochhar, Saurabh Mishra — May 5, 2016*

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## References

- [paper](http://www.imf.org/external/pubs/cat/longres.aspx?sk=42975)

_Source: https://www.imf.org/en/blogs/articles/2016/05/05/make-in-india-which-exports-can-drive-the-next-wave-of-growth_