Measures of Export Competitiveness

India-China trade has a marked imbalance with India importing three times as much as it exports to China

Two popular measure of competitiveness a. Balassas Revealed Comparative Advantage (RCA)

measure of a countrys export competitiveness in a particular commodity category in the international market for that commodity ratio of a countrys share of exports in world exports in a particular category to its share of exports in overall world exports RCA of greater than 1 indicates high competitiveness

b. Trade Intensity
measure of a countrys export competitiveness in a specific partners market Trade Intensity of ith country with respect to the jth country under kth category, Tijk is given by commodity

Analysis of Export Competitiveness

TI to RCA ratio help in identifying unfavorable deviation from normal competitiveness. Ratio less than one signifies that for commodity k, country i is not as competitive in the market of country j as it is in the world market For period 2001-08, TI to RCA ratio for different product group was calculated and those commodity categories were identified which has ratio below one

In those categories where China was not competitive in the Indian market, we identified other exporting countries who were the main competitors to China and ranked these competing countries as per their contributions to the incremental imports to India during the period 2001-2008. We then ranked China and its competitors in the Indian market as per their respective RCAs in that product category

Scenario Analysis
Analysis of sensitivity of Indo-China trade flows to a potential FTA. Two hypothetical scenarios are assumed i. China opens up its markets to India
China reduces tariffs on all items except sensitive to zero while India keeps rates same Result indicates that India will continue to have deficit. Export increase by 8.6% and deficit just reduces from $22.1 billion to $21.4 billion
Tariff rate down to 5% on sensitive items but kept unchanged incase of negative list items Bilateral trade grows by 15% from about $40 billion to $46 billion. Trade deficit grew by 18.18%

ii.

Both India and China open up their economies to each other

These findings suggest that India is not competitive enough in goods that even a completely biased FTA can reduce the India's trade significantly. Two prime reason being
Chinas tariff rates are already low and FTA in goods will not significantly boost exports to China 45% of Indias Export to china fall under non agglomerated iron ores and concentrates category on which china has a tariff rate of zero. So these wont be affected by FTA with china

This analysis shows that narrow FTA covering only goods trade will not be beneficial to India. The viability of a FTA will hinge upon the non-goods components such as services, investments, collaboration in research and development etc.