Can India Gain In Trade In The Post COVID-19 World?

Can India Gain In Trade In The Post COVID-19 World?
Can India Gain In Trade In The Post COVID-19 World?
Aparajita Gupta - 07 May 2020

New Delhi, May 7: With the rise in global protectionism and slowing global demand, 2019 was not a good year for merchandise trade. In 2020 also the merchandise trade volume could fall by as much as 31.9 per cent, stated the latest report by SBI Ecowrap adding that the extent of uncertainty is very high, and it is well within the realm of possibilities that for both 2020 and 2021 the outcomes could be sub-optimal.

There is now a renewed discussion of whether countries apart from China could benefit in the post coronavirus (COVID-19) pandemic world. However, seen from percentage share in world merchandise exports perspective, China has actually gained market share from 2018 and currently commands 13.2 per cent share in world merchandise exports and is still the world’s biggest goods exporter.

To get an idea, as to whether the world exports have actually moved in favor of other Asian countries vis-à-vis China in recent years we estimated the value of the commodities exported by 15 Asian countries including India to the world as the percentage share of China’s top commodity exports. The exercise was done for 2018 and 2019.

“The data shows that Vietnam has been the highest gainer, with its electrical machinery, furniture, clothing, footwear and leather industries performing remarkably well. In 2019, many of these countries grew rapidly in these sectors. As far as India was concerned, India gained in organic chemicals and iron & steel. However, in apparels, Vietnam, Cambodia, Bangladesh all gained significant share and was larger than India. India lost in leather exports to Cambodia and Indonesia that could have been diverted from China,” the report authored by Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of India stated.

To understand whether India can benefit if factories from China were relocated, the report looked at the capital goods, consumer goods, intermediate goods and raw materials Revealed Comparative Advantage (RCA) for India and China.

“Although, the RCA for India is lower than China as far as capital goods exports are concerned, India can still capitalise on this opportunity to push its capital goods exports. However, the bigger opportunity right now is in consumer goods sector, in which India has an RCA greater than China. For consumer goods sector, looking at the MSME profile of the country, the biggest concentration is in the textile and clothing sector (17.30 per cent), food products (12.30 per cent) and crop and animal production (10 per cent). Although we do have comparative advantage in textiles and animal goods, in food products we are not competitive. The government can give a direct push to this sector, so that MSME firms involved in food product manufacture get benefitted,” the report said.

The report suggested that although 2020 is a lost year, in terms of trade, India can think long-term and build relations so that it can occupy the space vacated by China.

“When we look at the value of merchandise exports, for 2019, China exported $2.5 trillion worth of goods, while India exported $0.3 billion worth of merchandise. This means that China exports 7 times the amount of goods India exports in a year. India can look in the range of incremental exports growing by $20 billion in the least favourable outcome to a significant $193 billion jump in the five ear horizon, only if it builds its capabilities and captures share from China,” the report pointed out.

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