Introduction of Export

How to Start Export is a fair question that every first time exporter wants to ask. Export in
itself is a very wide concept and lot of preparations is required by an exporter before starting
an export business.
A key success factor in starting any export company is clear understanding and detail
knowledge of products to be exported. In order to be a successful in exporting one must fully
research its foreign market rather than try to tackle every market at once. The exporter
should approach a market on a priority basis. Overseas design and product must be studies
properly and considered carefully. Because there are specific laws dealing with International
trade and foreign business, it is imperative that you familiarize yourself with state, federal,
and international laws before starting your export business.
Price is also an important factor. So, before starting an export business an exporter must
considered the price offered to the buyers. As the selling price depends on sourcing price, try
to avoid unnecessary middlemen who only add cost but no value. It helps a lot on cutting the
transaction cost and improving the quality of the final products.
However, before we go deep into "How to export ?” let us discuss what an export is and how
the Government of Indian has defined it.
In very simple terms, export may be defined as the selling of goods to a foreign country.
However, As per Section 2 (e) of the India Foreign Trade Act (1992), the term export may be
defined as 'an act of taking out of India any goods by land, sea or air and with proper
transaction of money”.
Exporting a product is a profitable method that helps to expand the business and reduces
the dependence in the local market. It also provides new ideas, management practices,
marketing techniques, and ways of competing, which is not possible in the domestic market.
Even as an owner of a domestic market, an individual businessman should think about
exporting. Research shows that, on average, exporting companies are more profitable than
their non-exporting counterparts.

Why Need to Export

There are many good reasons for exporting:

The first and the primary reason for export is to earn foreign exchange. The foreign exchange
not only brings profit for the exporter but also improves the economic condition of the
country.
Secondly, companies that export their goods are believed to be more reliable than their
counterpart domestic companies assuming that exporting company has survive the test in
meeting international standards.
Thirdly, free exchange of ideas and cultural knowledge opens up immense business and
trade opportunities for a company.
Fourthly, as one starts visiting customers to sell one’s goods, he has an opportunity to start
exploring for newer customers, state-of-the-art machines and vendors in foreign lands.
Fifthly, by exporting goods, an exporter also becomes safe from offset lack of demand for
seasonal products.
Lastly, international trade keeps an exporter more competitive and less vulnerable to the
market as the exporter may have a business boom in one sector while simultaneously
witnessing a bust in a different sector.
No doubt that in the age of globalization and liberalizations, Export has became of the most
lucrative business in India. Government of India is also supporting exporters through various
incentives and schemes to promote Indian export for meeting the much needed
requirements for importing modern technology and adopting new technology from MNCs
through Joint ventures and collaboration.
Before starting an export, an individual should evaluate his company’s “export readiness”.
Further planning for export should be done only, if the company’s assets are good enough
for export.
There are several methods to evaluate the export potential of a company. The most common
method is to examine the success of a product in domestic market. It is believed that if the
products has survived in the domestic market, there is a good chance that it will also be
successful in international market, at least those where similar needs and conditions exist.
One should also evaluate the unique features of a product. If those features are hard to
duplicate abroad, then it is likely that you will be successful overseas. A unique product may
have little competition and demand for it might be quite high.
Once a businessman decides to sell his products, the next step is to developing a proper
export plan. While planning an export strategy, it is always better to develop a simple,
practical and flexible export plan for profitable and sustainable export business. As the
planners learn more about exporting and your company's competitive position, the export
plan will become more detailed and complete.

Objective Basic plan for Export

The main objective of a typical export plan is to:

 Identifies what you want to achieve from exporting.

 Lists what activities you need to undertake to achieve those objectives.
 Includes mechanisms for reviewing and measuring progress.
 Helps you remain focused on your goals.
For a proper export planning following questions need to answered:

1. Which products are selected for export development?

2. What modifications, if any, must be made to adapt them for overseas markets?
3. Which countries are targeted for sales development?
4. In each country, what is the basic customer profile?
5. What marketing and distribution channels should be used to reach customers?
6. What special challenges pertain to each market (competition, cultural
differences, import controls, etc.), and what strategy will be used to address
them?
7. How will the product's export sale price be determined?
8. What specific operational steps must be taken and when?
9. What will be the time frame for implementing each element of the plan?
10. What personnel and company resources will be dedicated to exporting?
11. What will be the cost in time and money for each element?
12. How will results be evaluated and used to modify the plan?

From the start, the plan should be viewed and written as a management tool, not as a static
document. Objectives in the plan should be compared with actual results to measure the
success of different strategies. The company should not hesitate to modify the plan and make
it more specific as new information and experience are gained.

Some "Do's and Don'ts of Export Planning

DO ensure your key staff members are ‘signed on’ to the Plan.
DO seek good advice – and test your Export Plan with advisers.
DON’T create a bulky document that remains static.
DO review the Export Plan regularly with your staff and advisers.
DO assign responsibility to staff for individual tasks.
DON’T use unrealistic timelines. Review them regularly – they often slip.
DO create scenarios for changed circumstances – look at the “what ifs” for changes in the
market environment from minor to major shifts in settings. e.g. changes of government, new
import taxes.
DO develop an integrated timeline that draws together the activities that make up the Export
Plan.
DO make sure that you have the human and financial resources necessary to execute the
Export Plan. Ensure existing customers are not neglected.

Import Introduction
The import and export control in India was introduced for
the first time during the Second World War. The
marshalling of limited resources for war and civil purposes
necessitated the imposition of controls on the free economy
of the country. The statutory basis for these controls was
provided by the Defence of India Act, 1939 and the rules
made thereunder. The power to control the import and
exports was exercised by the Government under rule 84 of
the Defence of India Rules. Several notifications were issued
under this rule imposing restrictions on the import and
export of goods.
With the end of war and lapse of the Defence of India Rules
in September, 1946, the control over imports and exports
was continued by the Emergency Provisions (Continuance)
Ordinance. The ordinance was to cease to be operative in
March 1947. The question of continuance of import and
export controls was again considered by the Government of
India and it was thought that
"though the actual administration of these measures call for
gradual simplification as conditions permit, the measures
themselves should be retained for some time longer in order
to avoid any disturbance to the economy ofthe country
during the transition from war to peace time conditions".1
The Imports and Exports (Control) Act was accordingly
enacted on 24th March, 1947. The Act initially was to be in
force for a limited period of three years. Its life has been
extended from time to time. For the present it remains in
force till 31st March 1971. With the launching ofvariousfive
year plans and vast programme for economic development
of the country, conditions regarding foreign exchange are
far from normal, and it is unlikely that the Act would be
allowed to lapse in 1971. Besides, the Imports and Exports
(Control) Act, 1947, there are few other enactments. which
control the import and export of certain commodities. Thus,
the Foreign Exchange Regulation Act, 1947, control the
import and export of gold, silver, coin, currency notes and
bank notes. Under Section 11 of the Customs Act 1962, the
Central government has power to prohibit the import and
export of goods for purposes mentioned in the section. The
export of coffee is regulated by the Coffee Board under
Coffee Act, 1942, of tea by the Tea Board under the Tea Act,
1953. and ofcoir and coir products by the Coir Board under
the Coir Industry Act, 1953. The special enactments are not
the subject matter of this paper.
The Import and Export (Control) Act is a short enactment of
eight sections. Section 3 is the key section which confers a
blanket power on the Central government to make
provisions by order published in the official Gazette "for
prohibiting. restricting or otberwise controlling the import
into, and export ofgoods out of, India". The power given to
the government under the section is very wide. Any
conceivable commodity can be controlled under the section.t
The power of controlling extends not only on the point of
importation and exportation, but also to the internal trade
in, and use of. the imported commodity." Under Section 3,
the Central government has promulgated the Import
(Control) Order 1955, and the Exports (Control) Order
1962. The import order introduces a scheme of import
licensing. The goodsspecified in the ordercannot be imported
without a licence being granted by an appropriate licensing
authority unless the government has granted an exemption
to any commodity from licensing. The list mentioned in the
order requiring the licence import of commodities is so long
that hardly anything can be said to be left out.
The order prescribes very broad factors for issuing the
licence by the lecensing authority.' The broad discretion
conferred by the order, however, is attempted to be
restricted through the announcements contained in the
import trade control policy book, commonly known as the
Red Book. Further as the supplement to the Red Book the
government issues from time to time Hand Book of Rules
and Procedures containing procedural and other matters
relating to licensing,
It is well-settled that the control of the import and export
trade through licensing does not violate Article 19 (i) (g) of
the Constitution which guarantees to every citizen the right
to carryon any occupation, trade of business, but permits the
state to impose reasonable restrictions. In
2. Bhatnagars & Co. v. VI/ion ofIndia, A.I.R. 1957S.C. 478.
3. Abdul Azlz v. State of Maharashtra, A.I.R. 1963 S.C 1470.
4. One of the factors for refusal to issue a licence is the "non-
availability of foreign exchange" and "in the interests of the
state",Glass Chatons Importers and Association v. The
Union of India," import of glass chatons was banned by the
government, though licences were issued to the State
Trading Corporation, under rule 6 of the import order
authorizing the Government to cannalize import through
special or specialized agencies. It was held that rule 6 did not
violate Article 19 (i) (g) of the Constitution.

The Licensing Policy

The Hand Book along with the Red Book prescribes the
following three broad categories ofimporters for the purpose
ofissue oflicences:
(a) Established Importers;
(b) Actual users; and
(c) Registered Exporters.
These categories have varied from time to time depending on
economic needs of the country at a particular moment of
time and the foreign exchange position, etc. and the
experience gained by the department in the matter
oflicensing. For instance, to begin with, the major category
that existed was only that of an established importer and the
category of registered exporter was not there. Now the
categories ofactual users and the registered exporters have
gained ascendency over the established importers.
In this paper it is not possible to give indetail the principles
for issuing the licences. Suffice to mention that the basis for
issueof licence to established importers is expressed in terms
of fixed standards, flxed percentages of the past imports. So
also in case of registered exporters, generally speaking, the
policy is expressed in fixedpercentages. The exporter
registered with one of the various registering authorities is
entitled for an importlicence for a specified commodity, to be
used in the licensee's factory for manufacture of the
exportable commodity. However, the licensing authorities
may consider requests for permitting import of items not
specified in the policy.
However, in case of actual users authorities enjoy a wide
discretion to grant licences. The actual users are divided into
three broad sub-categories for purposes of licensing-(i)
small-scale industries; (ii) scheduled industries registered
with the Directorate General of Technical Development
(D.G.T.D.) ; and (iii) scheduled industries like textiles and
jute not registered with the D.G.T.D. and also non-scheduled
industries other than smallcale, e.g., coffee and coir.
Depending on the particular sub-category, the D.G.T.D.,
Textile Commissioner, etc. are involved in licensing in that it
is necessary to have their recommendations before the
licensing authority issues the licence.
The lincence to be issued to a manufacturer :depends on the
following various factors: availability of foreign exchange;
essentiality of the article for the manufacturing unit;
availability of the commodity asked for or substitute from
indigenous sources; and priority of the industry tn the
context of the needs of the economy.
All these factors, and particularly the first one, are vague
and difficult ofobjective determination. In practice, as the
Study Team of the Administrative Reforms Commission (A
R C.) on Economic Administration, points out that ';the
prime consideration is to relate the current allocation to that
made in the past years"." It is, however, not a rational way
ofdoing things as this does not take into account (except in a
general way) the anticipated changes in production,
estimated capacity, indigenous contents, stock position with
the manufacturer, and the resulting benefit in the context of
the overall economy? etc. According to the Study Team, the
criteria for decision making are neither clearly defined nor
uniformly applied. Here the recommendations made by the
Study Team may be reiterated that this uncertainity should
be removed and more definite criteria be evolved. All this
ofcourse requires knowledge of complete data regarding the
installed capacity and its utilization ofthe different
industries, inventory position. indigenous contents,
availability of substitutes within the country etc.

Licensing Procedure
Under Section 3 of the Act power if conferred on the Central
governinent to regulate the import and export of
commodities. However, the Central government has
conferred the power to issue licences on the Chief Controller
ofImports and various other licencing authorities through
the import order. The statute, it may be noted, does not
expressly permit subdelegation of powers of the government.
As a general principle of law, a discretionary power cannot
be further sub-delegated unless the statute permits this
either expressly or through implication." The sub-delegation
involved in import licensing was questioned in C.T.A. Pillai
V. Lohiar Upholding the order, the Calcutta High Court
stated that "the Central government as such does not issue a
licence; but power of issuing a licence is always conferred on
a prescribed officer under a statutory provision and
therefore having the force of law."IO The court, however,
missed the very issue whether the statutory provision
authorizing the government to issue the order empowered it
to sub-delegate its functions. Of course, there did not seem to
be any difficulty in impliedly reading the power of sub-
delegation in the statutory provision, since the provision is in
general terms and power ofregulation could be taken to
include the creation of administrative machinery also to
control the import and export of commodities.
Rule 3 read with schedule IV of the Import Trade Control
Order 1955 specifies various licensing authorities. However,
the Hand Book mentions the heads of the regional offices as
the licensing authority." As the Hand Book is issued by the
Chief Controller, it in substance means that it is the Chief
Controller of Imports who specifies these heads as the
licensing authorities. It is not clear under what provision it is
done. It looks odd that after specifying officials of different
ranks as licensing authorities in the order which expressly is
stated to be issued under the statute, the Chief Controller
should exclude them through the Hand Book the status of
which remains doubtful. The only provision relevant in this
respect can be clause 4 of the order which is entitled as "Fees
on Application for Licence." Sub-clause (i) of the clause
reads "thatevery application for a licenceshall be made to
the appropriate licensing authority." This cannot be taken,
except perhaps through a remote implication, to empower
the Chief Controller to prescribe appropriate licensing
authorities with reference to different applicants, or to
exclude officials mentioned in the order from the category of
licensing authorities. In this respect clause IV of the Export
Trade Order 1962 is better worded. It states that "an
application for licence shall be made to the Chief Controller
ofImports and Exports or any officer authorised by him in
this behalf".
Rule 6 also provides some ambiguity in this regard and
appears to be defectively worded. It says that the Central
government or the Chief Controller ofImports may refuse to
grant a licence or direct any other licensing authority not to
grant a licence on the grounds mentioned therein. Literally
read, this clause governs the power of the Chief Controller,
as the statutory provision stands now, the licensing
authorities seems to enjoy absolute power to refuse a licence.
Directions :
Apart from the Red Book and the Hand Book, it is usual for
the ChiefCOiltroller ofImports to issue directions on various
matters pertaining to import licensing to the regional
licensing authorities to control their discretion so that a
uniform licensing policy is followed throughout the country.
These instructions either clarify tbe import policy or lay
down the basis of the issue of instructions by the Chief
Con/roller of Imports remains doubtful. Prior to 1967 it can
be said without difficulty that there was no provision in the
import order conferring power on the ChiefController to
issue directions. In 1967 clause 6 of the order was amended
which now provides that "the Central government or the
Chief Controller of Imports and Exports mentioned
therein." The wordings of the clause are not happy. If
literally read, it means that the Chief Controller can direct
the licensing authorities only in specific cases. but cannot
fetter their discretion followed by them in granting licences.
Assuming that the clause 6 speaks of a direction for refusing
to issue a licence and not directions laying down conditions
for its issue. However, since a more drastic power would
ordinarily include a less drastic one, it seems that the present
wordings of the clause should not create any legal difficulty
on that score in issuing a direction containing general
principles for issuing licences by tbe licensing authorities.

Assistance of other Agencies

As has been observed by the Study Team of the A.R.C. on
Economic Administration. the office of the ChiefController
ofImports is recommendation-oriented. In granting import
licences particularly to actual users, tbe licensing authorities
take the help of other governmental or semigovernmental
agencies in that the applicants are required to route their
applications through the various sponsoring authorities. The
amount of licence to be issued to an applicant very much
depends on the recommendations of these authorities. In fact
in case of scheduled industries registered with the D.G.T.D.,
the licensing authorities follow more or less the
recommendations of the sponsoring authority. There is no
provision for such assistance in the import order. Only the
Hand Book and the Red Book contain the necessary
provisions in this regard. In the absence of express provision
for sub-delegation in the statute or the import order. the
legality of such a procedure depends on whether it amounts
to sub-delegation or merely taking of assistance. It is trite
law that assistance can be taken, but sub-delegation may not
be permitted unless there is statutory authority for such a
course. It the licensing authorities follow mechanically the
recommendations of these authorities then in law may
amount to sub delegation; but if they keeptheir mind open to
hear objections against these recommendations then it may
be a case of assistance. It seems that though the licensing
authorities act by and large on the recommendations of the
sponsoring authorities, they may take a different view in
suitable cases. The procedure, therefore, appears to be valid.
The rules of procedure to be followed in the
ChiefController's office are generally published in the Hand
Book and are thus known to the applicants. But not much is
known of the procedure of the sponsoring authorities.
Procedural safeguards available to an applicant in the office
of the ChiefController consists in an opportunity of
interviewing the dealing officer and in the remedy of two
administrative appeals-one to the head of the office where
the application was dealt with and another to the
ChlefController, However, the safeguards of administrative
appeal do not seem to be available to an applicant in the
office of the sponsoring authority, though as far as
procedural aspect of hearing is concerned the applicant may
have an opportunity ofinterview with the relevant officials.
Since in practice very much depends upon the
recommendations of the sponsoring authority to depart from
the recommendation of the former, fairness requires that
applicants should have a reasonable opportunity of being
heard at the initial stage, and in addition an opportunity of
appeal to a higher authority against the initial decision
within the office of the sponsoring authority. Administrative
Appeals
The Hand Book makes provision for two administrative
appeals. In the regional office, it may be noted, it is usual for
import applications to be considered not by the head of the
office but by some subordinate officials. An appeal in the
first instance lies with the head of the office in which
application was dealt with. The second appeal lies with the
Chief Controller of Imports from the decision of the
appellate authority. In either appeal the appellant is heard
in person if he so requests.
The Hand Book also provides for a review of the decision of
the ChiefController in appeal by the ChiefController
himself. The purpose of this review is not clear when the
appeal and the review applications are to be considered by
the same authority. Though the Hand Book is silent, there is
also a Grievances Committee at governmental level with
Special Secretary, Ministry of Commerce, as Chairman and
two joint secretaries and the ChiefController as members to
hear applications for review of the decisions of the
ChiefController.
ChiefController is an integral part in the processing of
licensing. It is he who lays down the Import trade control
policy, specifies the officials for grant of licences, issues
directions and co-ordinates and supervises the work within
his department. It is not expected of him to possess that
objective impartiality which may be essential in hearing the
case of an applicant, with an open mind. To infuse
objectivity in the decisions at the appellate stage, it is
essential that a body other than the ChiefController
ofImports may be constituted to hear appeals against the
order of the ChiefController. This matter was examined by
the Administrattve Reforms Commission. It was against the
institution of an independent tribunal, and rightly so. An
independent tribunal is appropriate in situations where the
decision has to be taken on an objective reading of the
statutory provisions and not where too much discretion has
been conferred on the department and the departmental
policies are an inseparable part of the decision-making
process. The issue of import licence depends on many vague
and fluid factors such as the foreign exchange situation,
priorities. economic policies at a particular moment of time
and so on. A tribunal is hardly expected to possess necessary
expertise to decide these factors. The need of justice in a
particular case may be out of tune with the departmental
policies and the requirements of the economy at a particular
moment of time.
The A.R.C. was of the opinion that instead of a tribunal
there should be constituted a Board Of Referees to advise
the government in respect of review applications received by
the government against the orders of the ChiefController.
About the constitution of the Board. the A.R.C. was of the
opinion that the membership of the board should include
some representatives of recognized bodies in the field of
industry and commerce like the E.I.C.C.I. and Associated
Chambers Of Commerce's so as to inspire public confidence.
The role of this Board is to be merely advisory. The actual
review of the decision of the Chief Controller of Imports will
have to be considered by the Grievances Committees
mentioned above which will take into account the advice of
the Board of Referees in deciding review applications. About
the Grievances Committee it may be mentioned that
membership of the ChiefController does not seem to be
desirable due to natural reluctance on his part to change his
own decision.

Legal Statuts of the Hand Book and the

Red Book
The Hand BOOK and the Red Book restrict administrative
discretion by laying down principles to be followed by the
licensing authorities in issuing import licences. It is not yet a
settled question whether these books have statutory force. If
they do not have statutory force. they can generally be
disregarded by the licensing authorities if they so wish. Till
recently it was believed that in no case administrative
instructions would be enforced at the instance of the
individual. But the landmark decision of the Supreme Court
in Union of India v. Indo-Afghan Agencies Ltd.1t indicates
that in exceptional situations the judiciary may enforce the
provisions ofthese books even if they are not regarded as
having statutory force, though the nature of such exceptional
situations is not easy to articulate. In this case the court
directed the licensing authority to grant an import licence to
the applicant under the export promotion scheme on
grounds of equity. The principle ofequity could be invoked
by the court because the applicant under the representation
of the department had exported certain goods in the hope of
getting an licence for certain other goods.
The Supreme Court has not directly decided whether these
books have statutory force. There is conflict of judicial
opinion amongst the High Courts on this point. The Punjab
High Court and the Calcutta High Court have held that
these books do not have statutory force. On the other hand
the Madras High Court has consistently proceeded on the
basis that the policy statements contained in these books
have statutory force.P
In the opinion of the author these books have statutory
force. As a practical matter, the need for formulating merely
departmental instructions instead of rules arises because
many policy variables may not be easily crystallized into
statement of fixed principles or that the administration may
lack sufficient expertise to formulate rule governing specific
situations. Further, departmental instructions may be based
on expediency rather than principles and subject to rapid
changes. However, it is anamolous to issue departmental
instructions and not rules or regulations having statutory
force when the above mentioned factors are absent. The
Hand Book contains matters which be justified on principle
and which are not subject to rapid or frequent change.
Therefore, on this basis the Hand Book ought to be regarded
as having statutory force.
It is true that changes in the Red Book have to be made
more frequently than in the Hand Book, but still normally
the Red Book is operative for a period of one year. Even if
exceptional situations necessitate some changes during this
period, these should not create any difficulty
ofaccomplishment. As far as the actual users are concerned,
the policy itselfconfers a wide discretion on the licensing
authority; therefore the issue of licences can be adjusted to
meet the new situation even without a formal change in the
policy. However. in case of established importers because the
policy is expressed in definite terms. it would be necessary to
make formal changes in the Red Boak, Since these changes
will have to be made with reference to importers, a formal
change in the policy should not bea difficult matter. This
conclusion is substantiated by the past experience. Whenever
changes had become necessary during the operation of a
particular policy period they were made through public
notices published in the Gazette of India and newspapers.
Certain legal consequences against the department are likely
to arise if they are not regarded as having statutory judicial
decisions is that absolute discretion cannot be conferred by a
statutory provision on the administrative authorities without
violating article 19{i)(g) of the Constitution.18 Such a
provision may be saved from unconstitutionality if it
contains procedural safeguards in the form ofadministrative
appealsagainst the exercise ofdiscretion. The Import Trade
Control Order gives almost unguided power to the licensing
authorities to grant licences. The order as such does not
contain provisions for administrative appeal against refusal
of licences. Only the Hand Book provides for administrative
appeals. In considering the constitutionality ofthe Import
Trade Control Order, Hand Book is to be disregarded if it is
held not to have statutory force. And without reading the
provisions of the Hand Book relating to the administrative
appeals. there is no scope in concluding that import order is
unconstitutional because of its conferring an unguided
power to grant licences on the ChiefController.
Further, it is settled principle oflaw that if discretion is
conferred by law on an authority, it is expected to exercise it
from case to case. It cannot fetter the exercise of discretion
by self-created rules of policy or laying down inflexible
principles to be followed by it. If these books are regarded as
not having statutory force then tbe administrative action
based on them may have to be regarded ultra-vires. With
regard to established importers, for example. both the books
lack flexibility of approach and lay down rigid rules. Thus
the Hand Book defines an established importer, and the Red
Book lays down the policy for the issue of licences in terms of
inflexible percentages, eg., ten per cent of the past imports
and so on. Nowhere it is slated that the principles contained
therein may not be followed in exceptional situations. When
a particular principle can be stated in definite and invariable
terms, it seems unjustified to regard it as a non-statutory
rule.

Composition of Imports and Exports in

India!
The composition of foreign trade is an important indicator of the
pattern of trade developed by country. By the term composition of
trade we mean the structural analysis involving the various types and
the volume of various items of exports and imports of the country.

The composition of foreign trade of a country reflects on the

diversification and specialization attained in its productive structure
along with its rate of progress and structural changes. The country
exporting more of primary products, viz., raw materials and importing
finished manufacturing goods and capital goods can be branded as an
underdeveloped country. With the passage of time a country attempts
to change the pattern of trade in such a manner so that it can attain a
better term of trade for its products by transforming the country from
a primary producing one to a producer of finished manufactured
products.

Composition of Imports in India:

ADVERTISEMENTS:

Just at the dawn of independence, the import basket of India was

mostly consisting of grains, pulses, oils, machineries, hardware’s,
chemicals, drugs, dyes, yarns, paper, non-ferrous metals, vehicles etc.
With the introduction of planning and with its emphasis on the
development of basic, capital goods and engineering industries, the
country had to import a huge quantity of capital equipment’s along
with its spares known as maintenance imports.
The table further shows that in 1960-61 total value of imports was Rs.
1,795 crore consisting of the share of above four groups as Rs. 286
crore (15.9 per cent), Rs. 776 crores (43.2 percent), Rs. 560 crore (31.2
per cent) and Rs. 173 crore (9.7 per cent) respectively.

Again in 1970-71, total value of imports of the country was Rs. 1,634
crore and the share of the above four groups was 14.8 per cent, 54.3
per cent, 24.7 per cent and 6.2 per cent respectively. After 1970-71
total import bill of the country increased substantially due to a
considerable hike in oil price by OPEC in 1973-74 and again in 1978-
79.

The OPEC raised the prices of oil from $ 2.50 per barrel to $ 3 per
barrel in 1973 and to 11.65 per barrel in 1974 and again $ 13.00 per
barrel in 1978 and $ 35 per barrel in 1979. Due to this steep hike in the
price of oil, total import bill of the country in 1980-81 increased
sharply to Rs. 12,549 crore out of which expenditure on petroleum oil
and lubricants (POL) only was Rs. 5,264 crore, i.e., 42 per cent of the
total.

During the 1970s, POL imports recorded a considerable increase of

about 44.2 per cent per annum as compared to that of 23.4 per cent
per annum for all imports. Besides POL, higher rate of growth of
imports was recorded by pearls, precious and semi-precious stones,
fertilizers, iron and steel and capital goods in order of value during
1970s. During 1980s, due to the introduction of import liberalization
policy by the government, import bill of the country rose considerably
to Rs. 19,658 crore in 1985-86 and to Rs. 43,193 crore in 1990- 91 and
then finally to Rs. 1,22,698 crore in 1992-93. Although there was a
slight fall on the import bill on POL in 1985-86 but since 1987-88,
import of POL both in terms of quantity and value started to rise.

Total import of POL increased from 25.6 million tonnes in 1989-90 to

about 29.3 million tonnes in 1990-91 and the total import bill on POL
rose sharply to Rs. 10,816 crore in 1990-91. In 2008-2009 total import
bill of the country rose to Rs. 13,74,476 crore and the bill on import of
POL rose sharply to Rs. 4,19,946 crore.

Following are some of the important information about the

compositions of Indian imports:
(a) Import expenditure on POL rose significantly from Rs. 136 crore in
1970-71 and then to Rs. 4,19,946 crore in 2008-09. Official projections
say that imports of POL will further go up in the coming year since the
demand for petroleum products is expected to grow from 57 million
tonnes in 1992-93 to about 100 million tonnes in 2000-01 and to
about 150 million tonnes by 2010-2011 A.D.

(b) Imports of different types of capital goods also rose significantly

from Rs. 404 crore in 1970-71 to Rs. 2,16,511 crore in 2008-09 which
amounted to about 15.7 per cent of total import in 2008-09.

(c) Import bill on pearls, precious and semi-precious stones also rose
considerably from Rs. 25 crore in 1970-71 to Rs. 76,130 crore in 2008-
09 and it amounted to nearly 5.5 per cent of total import in 2008-09.

(d) Import bill on fertilizer and fertilizer materials also rose

considerably from Rs. 86 crore in 1970-71 to Rs. 59,569 crore in 2008-
09 and amounted to nearly 4.33 per cent of the total imports in 2008-
2009.
(e) Import bill on iron and steel rose considerably from Rs. 197 crore
in 1960-61 to Rs. 45,531 crore in 2008-2009 and amounted to over
3.16 per cent of total imports in 2008-09.

Moreover, some other items which have been imported in India at low
scale in recent years include food-grains and edible oil.

Composition of Exports in India:

At the dawn of independence, the export basket of the country was
mostly consisting of jute, tea and cotton textiles, which jointly
contributed more than 50 per cent of the total exports earning of the
country. In 1950-51, these three commodities contributed about 60
per cent of the total export earnings of the country. But this export of
primary products is always disadvantageous as the terms of trade
always goes against the exporter country in this respect due to its
inelastic demand in international markets.

With the gradual diversification and growth of the industrial sector,

India started to export various types of non-traditional products.
Accordingly the share of jute, tea and cotton textiles in the total export
earning of the country gradually declined to 31 per cent in 1970-71 and
then considerably to 2.73 per cent in 2008-2009. But the share of
machinery and engineering goods in India’s total export increased
gradually from a mere 2.1 per cent in 1960-61 to 12.9 per cent in 1970-
71 and stood at 25.8 per cent in 2008-2009.

Table 7.3 shows the changes in the composition of export in

India:
1. Jute was one of the most important export items initially and
contributed Rs. 213 crore, i.e., about 20 per cent of the total export
earnings. But its share gradually declined to 12.4 per cent in 1970-71
and then to only 0.16 per cent in 2008-09.

2. Tea was second most important item of export which contributed

Rs. 187 crore (18.7 per cent of total export earnings) in 1960-61. Its
share declined gradually to 9.6 per cent in 1970-71 and then to 3.3 per
cent in 1990-91 and about 0.31 per cent in 2008-2009.

3. The share of cotton fabrics in total export earning of the country

also declined marginally from 8.7 per cent in 1960-61 to 6.4 per cent in
1990-91 and 2.25 per cent in 2008-09.

4. Export of handicrafts rose considerably from a mere Rs. 73 crore in

1970-71 to Rs. 1,33,465 crore in 2008-09 which constituted about 15.8
per cent of total export earning in 2008-09 and occupied third place.

5. Export of readymade garments has also increased considerably from

Rs. 29 crore in 1970- 71 to Rs. 50,294 crores in 2008-09 which
constituted nearly 5.98 per cent of total export earnings in 2008-09
and occupied fourth place.

6. Exports of machinery and engineering goods rose substantially from

a mere Rs. 22 crore in 1960-61 to Rs. 2,16,856 crore in 2008-09,
which constituted about 25.8 per cent of total earning in 2008-2009.
It occupied first place.
Moreover, in recent years (2008-09) the exports of some other articles
also increased considerably which include leather and leather
manufactures (Rs. 15,931 crore—5th place), chemicals and allied
products (Rs. 85,697 crore—4th place), iron ore (Rs. 21,725 crore) etc.
Types of Imports and Exports :
1. Dairy Products IAE
2. Agriculture Products IAE
3. Electricity IAE
4. Landscape IAE
5. Pulses IAE

India’s Dairy Exports : Opportunities , Challenges and Strategies :

India is the largest milk producer as well as consumer in the world and its milk production is
estimated to exceed the milk production of the entire European Union by 2018 and the gap is
expected to widen. India also has the distinction to be the lowest cost milk producer in the world.
Milk production and selling is crucial to livelihood of over 600 million people in rural India with a
herd size of 1-3 milch animals unlike large scale dairy farms in Europe. The establishment of
multilateral trading system under the WTO, on one hand opened up opportunities in international
trade by increased market access and worldwide reduction in import tariffs, both for production and
exports but in practice, these are being used as potent tools especially by developed countries such
as the US and the EU not only to obstruct entry of dairy and other agricultural products from
developing countries but also distort the free and fair operation in the international markets. The
paper attempts to carry out an analysis of India’s competitive edge in the global dairy production
and its international trade, crucially examines the major challenges and strategies for promoting
exports of dairy products from India. Key word: Dairy, globalisation, WTO, Agreement on
Agriculture, subsidies, export subsidies, nontariff barriers, international trade, domestic support,
AMS, Technical Barriers to Trade, SPS, Tariff, exports, dairy trade, trade, milk trade, India, new trade
order, dairy exports
Introduction The globalization of dairy industry has led to paradigm shift of international dairy
markets from being supply driven to demand driven. Thus, the international dairy market is getting
increasingly
India’s Dairy Exports: Opportunities, Challenges and Strategies Rakesh Mohan Joshi Professor and
Chairperson, Research and International Collaborations, Indian Institute of Foreign Trade, New
Delhi-110016 E-mail: rakeshmohanjoshi@gmail.com
responsive to market signals and changing consumer preferences, rather than merely by excess
production and depressed world prices. Dairy sector has become among the highest gross value
sectors in agriculture with higher prices and correspondingly higher value of milk production. The
prospects of sustained high prices for dairy products is creating incentives for investment expansion
and restructuring of local dairy industries. Milk production, international demand patterns and
economic development in various parts of the world impact the world dairy trade. The
establishment of multilateral trading system under the WTO that came in existence on 1 January,
1995 led to a new trade order in the world. On one hand the WTO opened up opportunities in
international trade by increased market access and worldwide reduction in import tariffs. Though
WTO aims at eliminating non-tariff barriers which include quota restriction, direct subsidies both for
production and exports, quality issues etc. but in practice, these are being used as potent tools
especially by developed countries such as the US and the EU not only to obstruct entry of goods
from developing countries but also distort the free and fair operation in the international markets1.
The expected growth in production and consumption of dairy products in developing countries
would further reduce the ratio of international dairy trade to global milk production2 to 6% in the
next decade. However, during the last decade, the international trade volumes grew at an average
of 3% per annum and overtook dairy production that increased at about 2.4% per year during the
period. This reveals the growing significance of international trade and its rapidly rising integration
of global production patterns and markets.

2. Global milk production and India

World milk production3 is projected to increase at an average of 1.8% during the next 10 years
compared to 2.3% average annual growth experienced in the past decade. The world milk
production is projected to increase by 164 million tons, out of which 74% of additional milk
production is expected to come from developing countries out of which India alone accounts for
29% of global gains. After years of double digit growth in milk production in China, the melamine
crisis shattered the consumer confidence in domestically produced dairy products. The Chinese
focus has shifted from increasing milk quantity to improving milk quality and the milk production is
expected to grow at an average of 2% per annum compared with the previous decadal growth of 7%
per annum. The average growth in milk production in Developed countries is expected to be at the
rate of 1% per annum in the next decade compared to 0.8% in the previous. This is due to the higher
yield experienced in developed countries. Despite that, the milk production growth in developing
countries is set to be at the rate of 2.5% per annum which is double the rate of 1% in developed
countries. The share of developed countries in the global milk production is expected to fall below
50% by 2022. Indian subcontinent is among the few regions in the world where consumption of milk
and milk products is historically imbibed in its culture unlike China and several other countries in
Asia and Africa where consumption of milk products is a recent phenomenon. The livestock sector in
India has been regarded as one of the most pro-poor sectors with considerable positive
development translating into increased income and employment to millions of people across the
country. Over the last four decades, while India has made considerable progress in industrial sector;
the growth in agriculture sector has hovered around three percent. The contribution of agriculture
to country’s GDP4 has also declined steadily from 50 percent in 1947, the year of India’s
independence to 13.7% in 2013. On the 3 OECD-FAO Agricultural Outlook 2013-2022, p.208 4
Quarterly Review 2013-14 (April-June), Ministry of Finance, Department of Economic Affairs, pg.31
other hand, the contribution of the livestock sector to overall GDP remained at about five percent
during the last three decades. The dairy and livestock sector contribute over 25 percent to the GDP
of agriculture5. Within the livestock sector, dairying has emerged as an important source of income
and employment. The sector has excellent forward and backward linkages, which promotes many
industries and increases income of vulnerable groups in rural area especially for marginal and small
farmers and contributes to a third of the gross income of rural households and nearly half for the
landless. The milk revolution in India reveals an exceptional success story as the milk production
increased remarkably from 17 million tons in 1950-51 to an estimated 140 million tons in 2013-14
and emerged at the largest milk producer in the World far ahead of the second largest producer the
US. Moreover, India’s milk production6 is expected to grow to 176 million tons by 2022 and far
exceed the total milk production of the entire European Union. This has been achieved through
ingenious organisations of a large number of small milk producers spread across the rural areas of
the country. The Operation Flood, one of the world’s largest dairy development programmes,
played a crucial role in achieving transformation of dairy industry in India. In addition to being the
largest milk producer, India also has the distinction to be the lowest cost milk producer. More
interestingly, there is a wide gap in the next highest producers: the US (89 million tons), China (43
million tons) and Pakistan (33 million tons). This phenomenal growth in milk production has been
due to demand side development on one hand and supply side promotions on the other. The per
capita availability has also increased from 112 gram/day in 1970-71 to 297 gm/day in 201213 (Figure
2). Despite India being the largest milk producer in the world, its yield continues to remain miserably
low at 1.1 per ton per head during 2010-12. USA has the world’s highest milk yield with 9.7 tonnes
per head followed by European Union (6.6 tonnes per head) during the same period.

Price trends in dairy industry

The prices of global dairy products increased to its peak in 2011 are expected to rise in nominal
terms while are likely to remain flat in real terms, as indicated in Figure 9-14. High production costs
are expected to moderate the price fall despite the fact that food prices are likely to decrease over
the short run. World market prices are expected to be 10% higher for SMP and 30% higher for
butter during the present decade ending 2022.

Graph

Graph

The growing concern about health and nutrition is likely to bring opportunities as well as challenges
to the dairy industry. The perceived benefits among the consumers of various bacteria strains has
made Pro-biotic sector among the fastest growing dairy business. Though the health claims of
functional dairy products are being revisited in several countries, it provides tremendous marketing
opportunities for high value added dairy products. The trends of tightening Food Law Legislations
and th e debate over the issue i s also a matter of concern. For instance, an EU proposal asked for an
indication on a package as to whether a product has ever been frozen, in order to improve
transparency which also includes dairy products such as butter and cheese. Denmark implemented a
tax on saturated fat in October, 2011 which also concerns certain dairy products, as a measure to
reduce the incidence of cardiovascular diseases and obesity. To develop effective strategic
responses to newly evolving regulations would remain the key challenge in international marketing
of dairy products.

Emerging trends in India’s int ernational dairy trade India remains the largest milk producing country
in the world contributing about 15 percent of the total world milk production. But, due to its large

and rapidly growing domestic demand especially in view of increase in population and rising income
levels, it has become the net dairy importer in the years 2010-12. India’s share in global milk exports
is 0.68% in 2013 whereas its share in the milk imports is 0.04%. This trade pattern is attributed to
increase in production of bulk of milk produced in liquid form by the dairy producer. India’s dairy
exports exhibited highly fluctuating trend mainly due to fluctuations in dairy production, domestic
demand and prices in international markets. Traditionally, India has been a net importer of dairy
products till Operation Flood began showing results. The trend for imports continued till 1993,
when, for the first time, exports exceeded its imports. However, between 1993 and 1999 imports
and exports kept edging each other out, and by 2000, India became a net exporter of dairy products.
Its exports continued to increase almost consistently from a meagre of US $ 3.45 million in 1996 to
US $ 270 in 2008 but declined subsequently to US $ 88.95 million in 2009. Also, with increasing
income levels in urban centres, the demand for processed dairy products has gone up leaving little
surpluses for exports. On the other hand the rapidly growing domestic demand led to increase in
India’s dairy imports from a meagre of US $ 1.48 in 1996 to US $ 177.4 million in 2011. As a result,
India became a net importer of milk products (Fig. 15) during 2010-2011. However, India’s dairy
exports grew much rapidly during the subsequent years whereas its imports declined. In 2013,
India’s dairy exports grew to US $575 million compared to its imports of US $ 34.6 million and India
re-emerged as the net exporter of dairy products.

Though milk and cream concentrated or sweetened accounted for the highest share of 88.65% in
India’s

dairy exports in 2013, its share has increased considerably from 70% in 2003 primarily due to
decrease in export of butter and other fats and oil derived from milk which accounted for 7.45% of
India’s dairy exports (Fig. 16-17) besides Though milk and cream concentrated or sweetened
accounted for the highest share of 88.65% in India’s cheese and curd (2.49%), milk and cream not
concentrated nor sweetened (1%), buttermilk and yoghurt (1%).Asian and African countries remain
the major destinations for India’s dairy exports. In the Asian region, neighbouring countries in South
Asia & the Middle East are the main buyers. Bangladesh and Egypt are the largest importers of
Indian dairy products accounting for 17% and 14% share (Fig. 18-19) respectively in 2013. Despite
several efforts, India has not been able to penetrate into the markets of Europe and North America
while the markets in South America also remain untapped. Unless India enhances exports of its
value added products with higher shelf-life, it would be difficult to have any significant increase in its
dairy exports. Sourcing of Dairy imports by India has witnessed a significant shift from Australia
(18%) in 2003 to in 2013 (Fig. 20-21). The share of European suppliers has more or less remained
unchanged, as shown in figure 20 and 21.

Major challenges in promoting exports of dairy products from India

Despite phenomenal growth in milk production to become the largest milk producing country in the
world, dairy exports from India face a number of challenges that may be summarised as follows:

terms of absolute quantity, India’s average milk yield per cattle remains much lower compared to
developed and even many other developing countries. The small size of milch-animal holdings in¾

India makes it difficult to adopt mechanised system of milking, cooling and chilledstorage which
hampers the efforts to improve quality at the farm production stage. India being a huge milk
consumer owing¾ not only to its large population size but also due to the largest vegetarian
population in the world whose only source of animal based essential nutrient is milk, much low
surplus is left for exports unlike other major dairy exporting countries. In many developed counties
India faces a ¾ perception of being a country with common prevalence of foot and mouth disease
(FMD) despite the sporadic incidences of the disease in some part of the country. India needs t o
make concerted efforts both to eradicate FMD and increase its perception to be free of any the
disease in milch-animals. Cow milk is the only popular milk in most ¾
 developed countries and buffalo milk is unheard of, whereas India produces substantiation quantity
of buffalo milk. As foreign buyers are not always sure of suitability of buffalo milk for human
consumption, they often insist upon dairy products manufactured from cow milk.

Emergence of new trade order and challenges to India’s dairy exports Creating fairer markets in the
agricultural sector including dairying has been the major contribution of the WTO. Although, the
earlier rules of GATT did apply to agriculture trade but it contained several loopholes. Some
developed countries protected their high-cost production of temperate zone agricultural products
(e.g. dairy, meat, wheat products and other grains,) by imposing quantitative restrictions and
variable levies on

imports in addition to the high import tariffs.7 This high level of protection often resulted in
enhanced domestic production which because of high prices, could be disposed off in the
international markets only under subsidy. Such subsidised sales depressed international market
prices of such agro products including dairy products. It also resulted into taking away of legitimated
market share of competitive producers such as India in the dairy and agro sector. As a result, the
international trade in agriculture became highly “distorted” especially with the use of production
and export subsidies which would not normally have been allowed for industrial products. Trade is
termed as “distorted” if prices are higher or lower than normal, and if quantities produced, bought,
and sold are also higher or lower than normal levels that usually exist in a competitive market. The
opening up of economy under the WTO’s multilateral trade regime increasingly exposed the Indian
dairy sector to the international markets, which in turn are distorted by domestic support,
prohibitive tariffs and export subsides in developed countries and offers a number of challenges
both in production and exports of dairy products from developing countries like India. Until 1991,
the Indian dairy industry was highly regulated and protected through stringent licensing provisions
and quantitative restrictions (QRs). India embarked upon liberal policy framework, which got
reinforced, in 1994, with the signing of Uruguay Round Agreement on Agriculture (AoA).

Heavy domestic support: adds to the woes of developing countries’ dairy producers National policies
that support domestic prices or subsidised production often encourage over- production. This
squeezes out imports or lead to export subsidies and dumping at much lower prices in international
markets to dispose off the excess production. Under the agreement of agriculture (AoA), domestic
policies that have a direct effect on production and trade were required to be cut back. The
domestic support in the agriculture sector is categorised under Green, Amber and Blue boxes as
discussed below.

Green Box All subsidies that have little or at most minimal, trade distorting effects and do not have
the “effect of providing price support to producers”, are exempt from reduction commitments. The
subsidies under the Green Box include: Government expenditure on agricultural• research, pest
control, inspection and grading of particular products, marketing and promotion services. Financial
participation by government in • income insurance and income safety-net programmes. Payments
for natural disaster.• Structural adjustment assistance provided • through: Producer retirement
programmes designed toi. facilitate the retirement of persons engaged in marketable agricultural
production. Resource retirement programmes designed to i i. remove land and other resources,
including livestock, from agricultural production Investment aids designed to assist the financiali ii.
or physical restructuring of a producer’s operations. Payments under environmental programmes.•
Payments under regional assistance • programmes.
Amber Box This category of domestic support refers to the Amber colour of traffic lights, which
means “slows down”. The agreement establishes a ceiling on the total domestic support that
government may provide to domestic producers.

Blue Box Certain categories of direct payment to farmers are also permitted where farmers are
required to limit production. This also includes government

assistance programmes to encourage agricultural and rural development in developing countries,

and other support on a small scale when compared with the total value of the product or products
supported (5 percent or less in the case of developed countries and 10 percent or less for
developing countries). The member countries quantified the support provided per year for
agriculture sector, termed as “total aggregate measurement of support” (total AMS) in the base
years of 1986-88. Developed countries agreed to reduce total AMS by 20 percent over six years
starting in 1995 while the developing countries agreed to make 30 percent cut over ten years. Least
developed countries were not required to make any cuts in AMS. The AMS is calculated on a
product-by-product basis by using the difference between the average external reference price for a
product and its applied administered price multiplied by the quantity of production. To arrive at
AMS, non-product-specific domestic subsidies are added to the total subsidies calculated on a
product-by-product basis. The level of domestic support continues to be very high in form of input
subsidies such as feed-grains, irrigation, interest on loan and insurance. However, 89 percent of
domestic support is concentrated in three regions/countries at EU (44%), USA (24%) and Japan
(21%). At the best, policies in many developed countries have only been cosmetically altered by
shifting the support from Amber to Green and Blue box measures. These heavy subsidies distort free
market competition and make the prices of dairy products lower than the real cost. By putting the
domestic support in green box category, developed countries are not providing level playing field for
developing countries.

Market access: obstructing international dairy trade Market access in developed countries is
hampered by their maintaining high tariffs on products of interest to developing countries. In
addition to elimination of all non-tariff measures by tariffication, all countries have bound all the
tariffs applicable to agricultural products. In most cases, developing countries have given binding
atrates that are higher than their current applied or reduced rates. There is a huge disparity in tariffs
on dairy products in India and other developed countries. The tariffs on dairy products are almost
three times higher in most developed countries than in India (Table 1).

Source: WTO tariff profile, WTO, 2013 Canada and Japan apply very high rate of tariffs at an average
of 228.5 percent and 89.6 percent respectively. The average applied tariff in EU and US is 52.9
percent and 19.9 percent respectively. India’s applied tariff rate at 33.5 percent is much lower than
its average bound tariff of 65 percent unlike most other developed countries. On one hand, this
tariff peaks continue to block developing countries’ exports to developed world whereas on the
other, due to reduction in tariffs by developing countries, the domestic markets would have been
flooded with cheap & highly subsidized products, which would only lead to large scale resentment.
SPS also continues to be a major barrier for developing countries in diversifying their exports in
horticulture, meat and dairy products.

Export subsidies by developed countries distorting international dairy trade The agreement on
agriculture prohibits export subsidies on agricultural products unless the subsidies are specified in a
member’s lists of commitments. Where they are listed, the agreement requires WTO members to
cut both the amount of money they spend on export subsidies and the quantities of exports that
receive subsidies. Taking averages for 1986-90 as the base level, developed

countries agreed to cut the value of export subsidies by 36 percent over the six years starting in
1995 (24 percent over 10 years for developing countries). Developed countries also agreed to
reduce the quantities of subsidised exports by 21 percent over the six years (14 percent over 10
years for developing countries). Least developed countries were not required to make any cuts.
During the six year implementation period, developing countries were allowed under certain
conditions to use subsidies to reduce the costs of exports marketing and transporting. The
developed countries continue to provide high export subsidy to dispose off their large agricultural
surplus in other countries of the world. EU gives subsidy of more than US$ 550 per tonne on SMP
(Skimmed Milk Powder), US$ 850 per tonne on Full Cream Milk Powder and US$ 12, 00 per tonne on
Butter and Butter Oil. While export subsidies on dairy products have been eliminated by the EU
except small subsidies for storing butter under the Private Storage Aid (PSA) scheme, but that too is
high.

Standards and safety measures Under article 20 of the General Agreement on Tariffs and Trade
(GATT) allows governments to act on trade in order to protect human, animal or plant life or health,
provided no discrimination is made and it is not used as disguised protectionism. In addition there
are two specific agreements dealing with food safety and animal and plant health and safely with
product standards. The Agreement on Sanitary and Phytosanitary (SPS) Measures sets out the basic
rules on food safety and plant health standards. This allows the countries t o set their own standards
which have t o be based on the science an d should be applied only to the extent necessary to
protect human, animal or plant life or health. These regulations should not arbitrarily or unjustifiably
discriminate between countries were identical or similar conditions prevail. Member countries are
encouraged to use international standards such as FAO/WHO Codex Alimentarius Commission for
food, International Animal Health Organisation for animal health etc. However, the agreement
allows countries to set higher standards with consistency. The agreement includes provisions for
control, inspection and approval procedures. The member governments must provide advance
notice of new or changed sanitary and phytosanitary regulations and establish a national enquiry
point to provide information. The Agreement on Technical Barriers to Trade (TBT) tries to ensure
that regulations, standards, testing and certification procedures do no create unnecessary obstacles
to trade. This agreement complements with Agreement on Sanitary and Phytosanitary (SPS)
measures. All WTO member countries are required to national enquiry points to make this
information available. In spite of above challenges, India can exploit better market opportunities for
its dairy exports in near future while maintaining its commitment under WTO. India can maintain its
dairy tariff rates at • WTO final bound levels, which is far higher than what actually India has been
applying. The export subsidies provision would not • affect the Indian dairy because Indian dairy is
out of this range. India can also expand its domestic support to• dairy under green and special &
differential (S&D) treatment boxes of WTO since they are exempted from reduction commitments.

Strategy to Promote Dairy Exports from India As physical infrastructure and logistics remains a key
concern for exports of dairy products from India, an integrated approach for overall enhancement of
export logistics in terms of creating cold chain facilities for transportation and storage needs to be
adopted. Besides, India needs to focus upon exports of value added products with increased shelf-
life and improved packaging to compete in international markets. Concerted efforts to market
especially in building global brands and establishing international marketing channels are also called
for. India needs to address effectively the emerging challenges under the new trade order affecting
exports of dairy products. Moreover, as import tariffs have considerably declined and quota
restrictions fast disappearing in international markets, there is a strong fear that high income
countries are increasingly making use of quality standards as a formidable barrier to dairy exports
from India and other developing countries. The research institutions an d scientists in India need to
keep a close vigil on such mandatory quality specifications in international markets so as to
overcome the newly emerging international trade barriers.

Agriculture Imports and Exports

International trade changed rapidly across the world after the establishment of World Trade
Organization (WTO) and subsequent liberalization of trade barriers. The economic reforms in the 1990s
and the ratification of the Agreement on Agriculture (AoA) with WTO had a major impact and redefined
agricultural trade on the international platform as well as in India. In the recent past, Indian agricultural
trade in various commodities has occupied an important place in world agricultural trade. Today, India
is a major supplier of several agricultural commodities such as rice tea, coffee, spices, fresh fruits and
vegetables, meat and marine products to the international market. However, India faces major
challenges and competition from the Asian countries for various agricultural products in the
international market even though there are international trade policies to make it somewhat easier to
compete on the international platform and with Asian countries.

On the basis of the prevailing reality, the comparative advantage of a country or region facilitates
economic integration in world trade. The trade policy of a nation or region is based on output value
that is drawn on the theory of comparative advantage. However, to explain the current circumstances
of international trade, the relevance of the theory of comparative advantage is being questioned even
though the theory has been of great importance within the domain of international trade after World
War II. This theory is based on available domestic natural resources. At present, a significant
improvement in information and communication technology is affecting the mobilization of factors of
production and productivity across countries and the pattern of world trade as well (Kowalski, 2011).
Ricardo (1817) emphasized on physical and natural resources but many post-Ricardo economists have
put more emphasis on the technological and human factors of production.

Within the domain of international trade, the proliferation of regionalization is getting

intensified due to limited progress of multilateral trade negotiations under the WTO. In the recent past,
India has been attempting integration with the world economy through regional engagement. One such
attempt was the signing of the Regional Trade Agreement (RTA) with ASEAN on August 13, 2009. In
the policy circle, the ASEAN-India Free Trade Agreement (AIFTA) generated intense discussion on the
economic impact of India’s trade in goods. Amongst the several commodities moving across India-
ASEAN borders, agricultural commodities claim irrefutable importance because a large number of
people in India still depend upon agriculture for a livelihood. Agricultural trade with Southeast Asia is a
major pillar of India’s external trade policy. To understand the comparative advantage of India in
agricultural products, it is important to provide a better picture of the ASEAN-India trade framework.
Therefore, the present study is designed to make a modest attempt to analyse the competitiveness of
India’s agricultural trade with ASEAN member-countries in the last decade.

This paper is organised in six sections. The next section gives a brief review, theoretical as
well as empirical, of related literature. Section Three presents the two-way trade flows between India
and ASEAN nations and Section Four discusses the data and methodology used for analyses of the
comparative advantage. Section Five presents the results of the study and Section Six brings together
the summary and conclusions of this study.

Review of Literature

This section is divided into two parts. First is a theoretical review of literature and second is an
empirical review of literature.

Theoretical Studies

In international trade literature, two prominent theories exist and are based on comparative advantage

– the Ricardian Theory and the Heckscher and Ohlin (H-O) Theory. Ricardo (1817) stated that absolute
production cost difference rather than comparative cost difference is the reason for international trade.
Instead, the H-O theory stated that the difference in factor price across the countries is the reason for
international trade.

The validity of the H-O theory has been examined and presented as the Leontief paradox.
Leontief (1951) used the US data of 1947 for his study. The US was then the most capital abundant
nation in the world and Leontief expected that it exported capital intensive commodities and imported
labour intensive commodities. In fact, he found the contrary of what he expected.

In brief, the comparative advantage of classical trade theories is determined by pre-trade relative
prices. In a closed economy, a country has comparative advantage in a particular commodity if relative
price of domestic goods is below its relative price in the world market. These pre-trade relative prices
depend on relative cost of production. Traditional measures of comparative advantage are based on
the comparison of pre-trade relative costs. However, due to the absence of observable data on relative
prices and/or costs, to fill this gap, Balassa (1965), introduced an alternative to calculate comparative
advantage, called Revealed Comparative Advantage (RCA) index.

Empirical Studies
Among the empirical studies, Balassa’s (1965) study was the first to arrive at the RCA index. It has
undergone changes several times (Balassa 1977, 1979 and 1986). He used post-trade data to calculate
the RCA index. The Balassa index did not determine the sources of comparative advantage but tried to
identify a country has revealed comparative advantage or not. The formula he defined as a commodity
share in total national export divided by its share in total world export. The RCA value of a commodity
that is greater than one indicates that a particular commodity has comparative advantage in exporting
it to the world. If the value is less than one, it indicates comparative disadvantage in exporting that
commodity to the world. RCA has been widely used to analyse the changes in trading patterns (Ferto
and Hubbard 2003, Batra and Khan 2005, Kannan 2010).

Ferto and Hubbard’s (2002) study used modifications of the RCA index developed by Vollrath
(1991) namely, the Relative Trade Advantage, the Logarithm of the Relative Export Advantage and
Revealed Competitiveness. They used data at 4-digit level of Standard International Trade Classification
(SITC) for the period of 1992 to 1998 for agro-based products. In fact, they explored the
competitiveness of Hungarian agriculture with the EU as its competitor. They found that in spite of
changes in the agricultural scene in Hungary, the pattern of revealed comparative advantage remained
stable.

Another study was by Widgren (2005) on the comparative advantage of a sample of Asian,
American and European countries from 1996 to 2002. His study mainly used the data of HS
classification at the 4-digit level. He studied the source of comparative advantage and came to the
following conclusion. In the context of the Asian continent, the factor content of comparative
advantage had some similarity. In the case of the US, it was based on highly skilled labour and for the
EU, it moved towards use of human as well as physical capital.

A study by Batra and Khan (2005) assessed the RCA index at the 2 as well as 6-digit level of
HS classification to compare the comparative advantage of India and China. The study mainly focused
on the changes in the structure of comparative advantage in the latter period (2002-2003). The authors
also examined the comparative advantage of the two countries according to factor intensity using the
SITC. The study does not find any structural changes in the comparative advantage of both the
countries, except for some manufacturing sectors. Further, Burange and Chaddha (2008) evaluated the
structure of comparative advantage in India and the change in the scene from 1996 to 2005. They used
the data as per HS classification to compute the RCA index. The index is constructed at various levels of
aggregation for exports and imports. Their study found that India has comparative advantage in the
export of labour intensive items like textiles and scale intensive items like chemicals and iron industries.

A similar study by Shoufeng et.al (2011) analyses the export competitiveness of agricultural products
between China and Central Asian countries by using the RCA index and trade competitiveness index,
came to the following conclusions: (1) China’s total agriculture products do not have comparative
advantage while Central Asian countries have changed from comparative advantage into comparative
disadvantage, (2)The total agri-products of both China and Central Asian countries have changed from
trade competitive advantage to trade competitive disadvantage, (3) China and Central Asian countries
have different advantage structures on specific categories of agricultural products, which presents vast
bilateral trade potential on the basis of comparative advantage.
 A study by Sarath Chandran (2010) used the Trade Intensity Index (TII) and RCA Index to
see the trade complementarities and similarities between India and ASEAN countries. His study
revealed that complementarities are available for both trading partners to enhance trade cooperation in
some sectors and products. This study showed that India has advantages in exporting of food grains to
small and less-developing ASEAN countries and importing edible oils and other agriculture products
from other ASEAN countries. India enjoys comparative advantages in minerals, chemicals, iron and
steel, gems and jewellery etc., while ASEAN countries have comparative advantage in electrical and
electronic components that India can import. In brief, with the spread of regionalization all over the
globe, the emerging economies warrant greater cooperation from India and vice-versa.

Further, a study by Shinoj and Mathur (2008) used the Revealed Symmetric Comparative
Advantage (RSCA) to find India’s comparative advantage in agricultural export vis-a-vis Asia. They
found that India’s comparative advantage in most of the important agricultural exports has been
eroding and losing out to other Asian competitors during the post reform period.

Andrew Maule (1996) studied the trade complementarity of Thailand with other ASEAN
countries. He used the data of 1991 and 1992 at the four digit SITC level and calculated the RCAX
(Export) and RCAM (Import) to find trade complementarity between trade partners. The study found
that trade complementarity was high between Thailand and other developed nations than between
Thailand and ASEAN neighbours. Further study shows that the difference in trade complementarity, a
real danger of AFTA (ASEAN Free Trade Agreement), lies in the possibility of trade diversions resulting
from its formation.

Andhale and Kannan (2015) estimated India’s RCA in agro-processed products with rest of the
world. The study followed commodity aggregation by WITS (World Integration Trade Solution) from
2003 to 2013. The authors found that India has comparative advantage to export 7 out of 44
processed animal products, 12 out of 40 processed vegetable products and seven out of 44 processed
food products. Further they used the consistency test for four indices of RCA. It was reported that the
ordinal measures are relatively more consistent than cardinal measures.

In a nutshell, we did not come across any important study that focuses on agricultural trade
competitiveness using Trade Intensity Index and Revealed Symmetric Comparative Advantage Index to
find out if the Indian agricultural sector is competitive or not under the ASEAN-India FTA. Hence, in the
said context this study is one step forward.

India’s Trade Profile with ASEAN Vis-a-Vis ASEAN with India

Theoretically, the value of exports between two countries should be the same as the value of their
imports. However, this may not be true in reality because there is often mismatch between the two due
to the fact that the exports are recorded FOB (free on board) while imports are recorded under CIF
(cost insurance and freight) (Joshi,2012). Hence, we have given India’s exports and imports to and
from ASEAN separately. The trade profile gives a clear picture of how India and ASEAN countries have
 been integrating over the last decade. The broad picture of total merchandise and agricultural trade
between India and ASEAN during 2001-2013 is given in Figures 1 and 2.

Figure 1 reveals India’s total merchandise as well as agricultural trade with ASEAN countries. The total
merchandise trade grew at an annual rate of 23 per cent from US $7.66 billion in 2001 to US $80.19 billion in 2013. Exports
(23.96 %) and imports (22.13 %) grew in double digit percentage during 2001 to 2013 (Figure 1). These represented about
11 per cent of total Indian exports and nearly 9 per cent of total imports in 2013. However, India’s imports from ASEAN
have been growing faster than its exports to ASEAN in absolute terms. The trade gap was always negative and volatile in
nature during the study period. It was US $ -1.03 billion in 2001, it reached to US $ -10.44 billion in 2010 and again fell to
US $ -4.42 billion in 2013. Imports out-valued exports throughout this period and hence the trade balance has been in
favour of the ASEAN.

On the other hand, it has been found that the total agricultural trade has been increasing at
an annual rate of 21 per cent and increased from US$ 1.95 billion to US$ 16.94 billion during 2001-
2013. India’s agricultural exports to ASEAN have been increasing at an annual rate of 24.89 per cent,
from US$ 0.85 billion to US$ 8.49 billion during 2001-2013. Imports grew at an annual rate of 20.25 per
cent, from US$ 1.11 billion to US$ 8.45 billion (Figure 1). It represented about 20 per cent of total
Indian agricultural exports and nearly 49 per cent of total agricultural imports in 2013. Agricultural
exports are growing faster than agricultural imports to and from ASEAN in terms of percentage. The
agricultural trade balance has also been in favour of ASEAN over the study period except in 2013. One
important aspect is that agricultural trade balance was negative and increased in 2010 and declined
thereafter but turned positive in 2013. In sum, India’s total trade, including agriculture, with ASEAN
countries was increasing over the last decade. So, India has a potential to increase its agricultural and
other trade with ASEAN countries.

Figure 2: ASEAN’s Trade with India

ASEAN total Merchandise Trade as well as Agriculture Export/

Import with India 2001-2013

50
18.6 %
45

40

35
.billion

30 21.58%

25
$

20
U.S.

15
19.60%
In

10

5
25.91%
0
 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Year

Total Export Total Import Ag. Export Ag. Import

Source: International Trade Centre (ITC).

Further, it can be observed very clearly that the total merchandise trade of ASEAN countries
with India increased at an annual rate of 20 per cent, from US$ 9.98 billion to US$ 72.53 billion during
the study period. Both exports (18.63 %) and imports (21.58 %) increased in double digit percentages
from 2001 to 2013 (Figure 2). It represented about 3.37 per cent of total ASEAN exports and 2.33 per
cent of total ASEAN imports in 2013. Hence, ASEAN’s exports to India are more than its imports from
India. The total trade balance is in favour of ASEAN over this period.

On the other hand, the total agricultural trade of ASEAN with India increased at an annual rate
of 21 per cent per annum – from US$ 2.05 billion in 2001 to US$ 15.66 billion in 2013. The ASEAN’s
agricultural exports increased at an annual rate of 19.60 per cent, from US$ 1.23 billion in 2001 to US$
7.93 billion in 2013. Imports increased at an annual rate of 25.91 per cent, from US$ 0.82 billion in
2001 to US$ 7.73 billion in 2013 (Figure 2). It represented 8.72 per cent of total ASEAN agricultural
exports and 7.50 per cent of total agricultural imports in 2013. However, agricultural trade balance has
also been in favour of ASEAN over the period. It was US$ 0.40 billion in 2001, touched US$ 4.67 billion
in 2011 and fell to US$ 0.20 billion in 2013. Overall we can say, over the last decade India’s trade
balance of total merchandise as well as agriculture trade has been in favour of ASEAN. Despite of this
fact, India’s total merchandise trade, including agriculture, with ASEAN countries is growing faster than
ASEAN trade with India in terms of annual growth rate over the reference period of 2001 to 2013.

Method & Materials

Data Sources

The study is based on export and import data as per the Harmonized System (HS 2007) classification.
The entire data is sourced from the International Trade Centre (ITC) and covers a 13-year period from
2001 to 2013.
Methodology

For any RTA to be successful, it is important to have a complementary trade structure between
partners for mutual benefit. Countries having a complementary trade structure are likely to trade more
whereas countries with similar trade structure will often struggle to improve trade share unless there is
substantial intra-industry trade (Chandran, 2010). Despite its limitation, we used the Trade Intensity
(TI) Index and modified RCA index to assess the competitiveness of agricultural products between India
and ASEAN countries. These are the important tools in international trade to study the competitiveness
of participating countries and hence reveal the possibility of increased trade cooperation between them.
For this analysis we defined the agriculture sector based on the Uruguay Round of Agreement on
Agriculture (URAoA) and Chapters 01-24 of the HS classification. The Trade Intensity index is used to
see how intensely India and ASEAN countries trade in agricultural goods compared to the rest of the
world (ROW).

The bilateral trade intensity index for total trade is as follows:

Tij = [(Xij+Mij)/(Xi+Mi)]/{[Xwj+Mwj)-(Xij+Mij)]/[(Xw+Mw)-(Xi+Mi)]} (1)

Where,

Tij = Total trade intensity index of country i (India) with country j (ASEAN);

Xij = Exports of country i to j;

Mij = Imports of country i from j;

Xi =Total exports of country i;

Mi= Total imports of country i;

Xwj= Total world exports to country j;

Mwj = Total world imports from country j; and

Xw = Total world exports; Mw = Total world imports.

This index is interpreted as a relative measure of the two basic ratios. If the value of Tij > 1, it
implies that the bilateral trade intensity for country i with country j is greater in comparison to country
i’s trade with the rest of the world (ROW). For instance, if India is considered as country i and country j
is represented by its trading partners, viz, ASEAN, then a value of Tij > 1 implies that India prefers to
trade more intensely with ASEAN than with the ROW. Trade Intensity Index is further divided into
Export Intensity Index (EII) and Import Intensity Index (III) for looking the pattern of intensity in
agricultural exports and imports.

EII between India and ASEAN = [Xij / Xi] / {[Mj – Mji] /[ Mw – Mi]} (2)

EII= Export Intensity Index

Mj = Total imports of country j and

Mji = Imports of country j from country i.

A value of this index above unity implies that country i’s relative share of exports to country j exceeds
country j’s share of imports from the ROW.

III between India and ASEAN = [Mij / Mi] / {[Xj-Xji] / [Xw- Xi]} (3)

III = Import Intensity Index Xj=

Total export of country j and

Xji = Export of country j to country i.

A value of this index above unity implies that country i’s relative share of imports to country ‘j’
exceeds country j’s share of exports from the ROW (Asher and Sen, 2005).

Moving further, the RCA index is calculated at the aggregate level as well as disaggregates
level. First we calculated RCA index for total agriculture sector and clubbed under the four major
categories on basis of Harmonized System (HS 2007) to understand the sectoral competitiveness over
the study period.

Table 1: Details of the Sectors Included Under the Analysis

Sl. No. Details Code

1. Live Animal HS 01-05

2. Vegetable products HS 06-14

3. Animal or vegetable fats products HS 15

 4. Prepared foodstuffs products HS 16-24

Source: Author’s aggregation based on HS classification.

For the disaggregated level analysis, ten major agricultural commodities/commodity groups
were selected based on their respective shares in India’s total agricultural exports. They are marine
products, milk products, meat products, vegetables and fruits, rice, cereals, coffee, tea and spices.
During the period under study (2001-2013), these commodities together accounted for more than 65
per cent of India’s total agricultural export earnings from the world.

To examine the export competitiveness of agricultural products between India and ASEAN
countries, we used the RCA index. To capture the degree of trade specialization of one country, Balassa
(1965) introduced the RCA index. It shows how a product is competitive in country’s exports compared
to the product’s share in another country or group of countries. A product with high RCA is competitive
and can be exported to countries with low RCA. Countries with similar RCA profile are likely to have
high bilateral trade intensities unless intra-industry trade is involved (Chandran, 2010). Under the
assumption that the commodity pattern of trade reflects the inter-country differences in relative costs
as well as non-price factors, the index is assumed to “reveal the comparative advantage of the trading
countries (Shinoj & Mathur, 2008). The advantage of using the RCA index is that it considers the
intrinsic advantage of a particular export commodity and is consistent with the changes in an
economy’s relative factor endowments and productivity. The disadvantage, however, is that it cannot
distinguish improvements in factor endowments and pursuit of appropriate trade policies by a country
(Batra & Khan, 2005).The original index of RCA was first formulated by Balassa (1965) and can be
written as follows.

RCA1 = (Xij /Xit) / (Xnj / Xnt) (4)

Where,

Xij = ith country’s exports of commodity j

Xit = ith country’s total exports (all merchandise).

Xnj = nth set of countries export of commodity j.

Xnt = nth set of countries total exports (all merchandise)

In the present study, country ‘i’ refers to India , commodity ‘j’ refers to any of the selected
agriculture commodity and set of countries ‘n’ refers to the members of ASEAN . We have slightly
modified the above said formula as follows,
RCA 2 = (Xij / XiAg) / (Xnj /XnAg) (5)

Where,

Xij = ‘i’ (India’s) exports of agricultural products (Ag) j.

XiAg = ‘i’ (India’s) exports of total agricultural products (Ag).

Xnj = ‘nth’ (ASEAN) exports of agricultural products j.

XnAg = nth (ASEAN) exports of total agricultural products (Ag).

The RCA index value ranges between zero (0) and positive infinitive (+∞). If the RCA index
value of a country is greater than one, the country has comparative advantage in those products and
vice -versa. However, RCA suffers from the problem of asymmetry as ‘pure’ RCA is basically not
comparable on both sides of unity because the index ranges from zero to one if a country is said not to
be specialized in a given commodity. The value of the index ranges from one to infinity, if a country is
said to be specialized.

Some procedure has been proposed to alleviate the problem of asymmetry, such as the
logarithmic transformation of the Balassa measure (Vollarth 1991). But the methodological problem
arises when, for example, ln(RCA) is used as the basis for statistical test – small RCA values are
transformed to high negative ln(RCA) values (Dalum et al. 1998). The index is made symmetric,
following the methodology suggested by Dalum et al. (1998) and the new index is called ‘Revealed
Symmetric Comparative Advantage’ (RSCA). Mathematically, it can be expressed as follows,

RSCA= (RCA- 1) / (RCA+1) (6)

The value of RSCA ranges between {– 1} and {+ 1} and is free from the problem of
skewness. A commodity is said to have comparative advantage in its exports if the corresponding RSCA
value is positive and vice-versa. In the present study, the RSCA was used to look into the comparative
advantage of the selected commodities.

Results

Agricultural Trade Intensity between India and ASEAN

It is evident from Table 2 that India’s total agricultural export as well as import intensity with ASEAN is
above unity for all the years. It is revealed from the overall estimate of EII and III that India’s

agricultural trade is more intense with ASEAN countries compared with ROW. According to the natural
trading partner theory countries trade more with neighbours and countries in close proximity rather
than distant countries. However, these indices support the natural trading partner theory that the
intensity of India’s trade with its neighbours is higher than with the ROW. The ASEAN countries are
natural trade partners of India in agricultural trade. India’s Agricultural EII marginally increased and III
declined during the study period. India’s III with ASEAN is higher than EII; it means that imports of
agricultural goods from ASEAN are more intense than export of agriculture goods to ASEAN.

Table 2: India’ Agricultural Exports and Imports Intensity Index with Respect ASEAN;
2001 to 2013:

Years India’s EII with ASEAN India’s III with ASEAN

2001 3.60 6.59

2004 3.74 7.73

2008 4.28 6.00

2013 3.69 6.30

Source: Author’s calculations based on ITC Database.

Note: EII- Export Intensity Index. III - Import Intensity Index.

The agricultural export and import intensity of India with ASEAN countries is presented in
Table 3. India’s EII is above one with Malaysia, Indonesia, Philippines, Singapore Thailand, and Vietnam
and has declined for Thailand and Vietnam during the study period. For Brunei and Cambodia it is
below one till 2008, after which it turns above one. Lao PDR is one country where the EII is below one
for all the years due to the lower exports from India. It shows that after singing of AIFTA, India’s
agriculture export intensity increased with less developed countries. India will consider Thailand and
Vietnam as the best partner for export of agricultural commodities in comparison to other ASEAN
members (the value of EII has increased over the study period for both the countries).

On the other side, India is importing smaller volumes of agricultural commodities from the less
developed ASEAN countries, which is reflected in the low III with Brunei, Cambodia, and Lao PDR. India
had very high import intensity with Indonesia (16.97) and Malaysia (7.28) in 2013. Interestingly, India’s
agriculture trade with ASEAN is heavily tilted towards Indonesia – around 38 per cent India’s agriculture
trade to ASEAN headed to that country in 2013. India’s import intensity was below one with the
Philippines, Singapore and Thailand for all the years. The import intensity with Vietnam was below one
till 2008 but it turned above one after that. India will consider Indonesia, Malaysia and Vietnam to other
ASEAN members (all the countries the value of III above one) as the best partners of its import source
of agricultural commodities.

Table 3: India’s Agricultural Export and Import Intensity Index with ASEAN Countries.

Year BRU1 CAM LAO MAL INDO PHI SING THAI VIET

2001 EII 0.25 0.14 0.41 4.24 5.81 3.29 2.53 2.71 4.26

III 0.00 0.00 0.00 15.60 14.71 0.28 1.03 0.33 0.47

2004 EII 0.51 0.12 0.01 5.24 4.79 2.50 2.04 2.09 8.12

III 0.00 0.00 0.19 7.12 28.41 0.25 0.45 0.24 0.89

2008 EII NA 1.21 0.00 5.51 3.53 2.42 1.48 2.57 14.27

III NA 11.51 0.01 2.91 18.48 0.56 0.65 0.51 0.46

2013 EII 1.09 1.48 0.92 3.18 2.63 1.96 1.00 3.08 7.90

III 0.00 0.02 0.02 7.28 16.97 0.31 0.58 0.79 1.08

Source: Author’s calculations based on ITC Database.

Note: Data is not available for Myanmar

The volume of agricultural trade between India and ASEAN is less because of the strict Rules
of Origin and the exclusion of most of the agriculture commodities from the tariff concession committed
to in the AIFT agreement.

Revealed Comparative Advantage between India and ASEAN

We can see from Table 4 that the Revealed Symmetric Comparative Advantage (RSCA) for the entire
agricultural sector of India with respect to ASEAN countries from 2001 to 2013 is fluctuating. India’s
agricultural sector enjoyed comparative advantage with gradual decreasing trend from 2001 to 2008. It
shows that India is losing its comparative advantage in export of agricultural goods to ASEAN markets.
The world witnessed a very difficult global financial crisis in 2009 as reflected in RSCA results and it was
also a bad experience for the Indian agricultural sector. The values of RSCA were negative from 2009
to 2011; it means that India had a comparative disadvantage in these years. The inception of AIFTA in
2010 had some positive impact on India’s comparative advantage for agricultural exports to ASEAN
markets. Hence, the position changed from comparative disadvantage to comparative advantage later.
Table 4: RSCA Index of Total Agricultural products.

Year 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

RSCA 0.30 0.25 0.19 0.19 0.15 0.14 0.09 0.04 -0.10 -0.05 -0.03 0.12 0.15

Source: Author’s calculations based on ITC Database.

To understand the sector wise comparative advantage of agricultural goods, we divided the
agricultural sector into four parts – Live Animal (HS 01-05), Vegetables Products (HS 06- 14), Animal or
Vegetables Fats Products (HS 15) and Prepared Foodstuff Products (HS 16-24) and calculated the RSCA
index. The results are presented in Table 5.

1
Abbreviations are given in appendix 1 at last.
Table 5: Sector wise RSCA Index for India with Respect to ASEAN

Year 01-05 06-14 15 16-24

2001 0.00 0.39 -0.71 -0.25

2002 0.06 0.46 -0.83 -0.30

2003 0.08 0.46 -0.83 -0.22

2004 0.08 0.43 -0.77 -0.22

2005 0.15 0.42 -0.78 -0.28

2006 0.11 0.37 -0.81 -0.09

2007 0.12 0.41 -0.84 -0.05

2008 0.11 0.39 -0.85 0.07

2009 0.19 0.39 -0.79 -0.12

2010 0.28 0.37 -0.80 -0.07

2011 0.30 0.40 -0.82 -0.11

2012 0.22 0.46 -0.86 -0.24

2013 0.37 0.43 -0.86 -0.31

Source: Author’s calculations based on ITC Database.

Note: 01-05: Live Animal. 06-14: Vegetable Products. 15: Animal 0r Vegetable Products. 16-24:

Prepared Foodstuff products.

The value of RSCA index was positive for Live Animal (01-05) sector for all the years. India has
‘revealed’ comparative advantage with an increasing trend in ASEAN markets. Hence, India has some
potential to capture the ASEAN markets for the export of Live Animal products from ROW to ASEAN. In case
of Vegetable Products (06-14), the value was also positive with a stagnant trend for all the years. It means
that India has comparative advantage in ASEAN markets for Vegetable exports. Hence, India can focus on
ASEAN rather than ROW, to increase the export of Live Animal and Vegetable products. On the other hand,
the values for ‘Animal or Vegetable Fats’ (15) products and ‘Prepared Foodstuff’ (16-

24) products were negative for all the reference years. Hence, India has comparative disadvantage in
these two sectors. Basically, these two sectors are known as value-added industries and have the
potential to acquire international markets to earn foreign currency. Hence, India should use AIFTA to
convert its position from comparative disadvantage to comparative advantage. The commodity wise
details of the RSCA index results are presented in the next section.

Marine Products

The values of RSCA index for marine products for India with respect to ASEAN are depicted in Figure 3. The
index value was negative throughout the period under consideration and volatile in nature due to factors such
as slowdown in global consumer demand, shift in demand towards less expensive species and implementation
of stringent sanitary and phyto-sanitary (SPS) measures. Further, low MFN (Most Favoured Nation) base rate
in most of the ASEAN countries have included most of the prominent items of India’s marine products in the
exclusion list (Parvathy and Rajasenan, 2012). Based on the latest FAO (Food and Agriculture Organization)
Fish Index, the price of fish and fish products weakened in late 2008 and early 2009, reaching the lowest in
March 2009. Thailand, China, Indonesia, Vietnam and The

12
Philippines are the major competitors to Indian marine products because these countries are producing
and supplying large quantities of farmed shrimp to the international market.

Even though, India had comparative disadvantage in the initial period, it turned to
comparative advantage for short period and again had a comparative disadvantage position for a long
time. The results have wide-reaching implications for India; India may have comparative advantage for
marine products in global markets but not in ASEAN. Hence, the other markets are more suitable for
marine products than ASEAN.

Milk Products

India is currently in first place in milk production in the world but does not enjoy any comparative
advantage in ASEAN markets. Hence, the ASEAN markets may not be suitable for export of Milk
products. So, India has to look for other markets for export of milk products. The computed RSCA
values for milk for India with respect to ASEAN were negative throughout the study period except in
2013 and indicated ‘revealed’ comparative disadvantage in Milk products exports (Figure 3). India’s milk
products are facing many challenges in ASEAN markets such as high tariff rates and SPS norms. For
instance, import has been banned in Indonesia due to Foot and Mouth Disease (FMD) prevalent in
India. The Philippines, Thailand, Indonesia and Malaysia have kept most of Indian milk products under

the Exclusion List2 (AIFTA Text.)

Figure 3: The trend in RSCA index on Marine, Milk and Meat Products

RSCA of India With respect to ASEAN for Marine, Milk amd Meat products

1.20
‐0.60
1.00
‐0.80
0.80

0.60 Marine Milk

Value

0.40 Source: Author’s calculations based on ITC

Database.
0.20
Index

0.00

‐0.20 2001 2002 2003 2004 2005 2006 2007

RSCA

‐0.40 Year
2008 2009 2010 2011 2012 2013

Meat
Meat Products

Meat has become an essential food all over the world because of its high protein content. In meat
exports, China and the US are the major competitors to India. The estimated RSCA values for India
were positive for all the years and indicated comparative advantage in meat exports. The RSCA value
increased till 2004. However, it was stagnant for the remaining period (Figure 3) due to the prevalence
of stringent Non-tariff barriers (NTB) in ASEAN markets like barriers related to process standards. For

example, slaughterhouses should be certified under HACCP 3 policy in The Philippines and Malaysia.

Singapore and Indonesia banned Indian meat imports due to the FMD prevalent in India. In 2014 the
outgoing government passed a legislation to open the Indonesian market to meat imports from FMD
affected countries on certain conditions. However, despite this fact India has the potential to increase
its market share in ASEAN markets by using the AIFT Agreement.

Edible Vegetable Products

In vegetable exports also China is a major competitor to India. India is second largest producer after
China, of fresh vegetables in the world. India lacks high-quality storage facilities required to store fresh
vegetables. Efforts are required to create adequate storage facilities. The values of RSCA were positive
for all the years except 2012 (Figure 4). For fresh vegetable exports India can explore its market
opportunity with ASEAN countries.

Edible Fruit Products

Fruit products also require good storage facilities. In mango and orange production India is placed first
and third, respectively, in the world. Hence, India has the potential to feed fruits to the world. In the
recent past India has been losing its comparative advantage position in ASEAN markets. The values of
RSCA were positive up to 2011 and India had a comparative advantage in fruit exports to ASEAN but it
turned negative in 2012 and 2013 (Figure 4). It shows that the singing of AIFTA (2010) has no impact
on fruit exports from India to ASEAN countries.

Rice

The values of RSCA indices for rice are presented in Figure 5. It reveals that India had comparative
advantage to export rice to ASEAN for the period under consideration. In 2001, the RSCA value was
0.13 which improved to 0.56 in 2013. It implies that India’s competitiveness in rice exports to ASEAN
has been increasing over the period. In the recent past rice export has shown a remarkable growth due

to factors such as the adjustment in the exchange rate, attractive premium on exim-scrips4 policy and
inclusion of certain varieties of rice in the open general license that made the export of rice more
competitive in the international market (Sahini 2014). Despite the facts, Indian rice varieties are facing
the severe problem of Non-Tariff Barriers (NTB) in ASEAN – barriers related to product standard. For
ex., Indonesia imports 25 per cent broken non-Basmati rice, unlike other ASEAN countries such as
Malaysia and Singapore that import 20 per cent broken non-Basmati rice (Saqib and Taneja 2005). It
implies that it is very difficult for exporters to meet individual country’s demands.

Graph Rice

Cereals

We excluded rice from cereals for this analysis. The values of RSCA indices for cereals for India with
respect ASEAN is presented in Figure 5. The values of RSCA indices were positive for the reference
period of the study. India is enjoying comparative advantage in cereals exports to ASEAN. Hence,
ASEAN is an important destination for Indian cereals exports in future also.

Coffee

In coffee exports, Indonesia, Thailand and Vietnam are the major competitors to India. The computed
RSCA values for India at the initial period were positive up to 2003 and for the remaining period it was
negative (Figure 6). It indicated that for coffee exports, India has comparative disadvantage in ASEAN
markets. The serious concern is that Vietnam and Indonesia are improving at a rapid pace and posing a
serious threat to Indian coffee in the international markets. The major coffee producing countries like
Thailand, The Philippines and Vietnam have put Indian coffee either on the Exclusion list or Sensitive

list5 (AIFTA Text).

Graph Coffee

Tea

The values of RSCA indices for tea for India are depicted in Figure 6. It was positive with a comparative
advantage in tea export to ASEAN throughout the study period. But, India’s comparative advantage
was stagnant around the value 0.80 for all the years. In 2001, the value of RSCA was 0.82 and it fell to
0.76 in 2013. Sri Lanka’s dominance in the global market is poising a serious threat to Indian tea
exports in international markets (Shinoj and Mathur, 2008). The increase in domestic demand for tea
and decrease in exports to USSR are the major reasons for declining comparative advantage.
Nevertheless, India can increase its tea export market share to ASEAN countries because it had a
comparative advantage for the entire study period.

Spices
The value of RSCA indices for spices for India with respect to ASEAN is presented in Figure 6. India had
comparative advantage in spices exports to ASEAN throughout the study period. It can be noted from
Figure 6, that India’s comparative advantage in spices exports to ASEAN has been increasing from 2001
to 2009 but thereafter started to decline.

Summary and Conclusion

In this study we found that India’s export intensity in total agricultural trade has been increasing with
respect to ASEAN rather than the ROW. In terms of Import Intensity it was declining over the study
period. The study also noted that India’s trade intensity in agricultural trade was varying from country
to country. India’s export intensity increased with the Vietnam, Thailand, Brunei, Cambodia and Lao
PDR over the period. On the other hand, it decreased with the rest of the ASEAN countries such as
Indonesia, The Philippines, Malaysia, and Singapore. Further, import intensity was very low with Brunei,
Cambodia and Lao PDR. In contrast, it was very high with Indonesia (16.97) and Malaysia (7.28)
particularly in 2013. The findings of the study are consistent with the argument posed in other studies,
like those by Kalirajan and Bhattacharya (2007). It is notable that both export and import indices with
Brunei, Cambodia and Lao PDR are very low. It reveals the future potential for trade with these
countries.

India’s comparative advantage in export mainly for agricultural products with ASEAN had been
gradually decreasing throughout the period under study. In addition, the comparative advantage from
2001 to 2008 turned into comparative disadvantage in 2009 to 2011 and comparative advantage was
regained in 2012 and 2013 within the ASEAN markets. Sector wise analysis of comparative advantages
revealed that India enjoyed comparative advantage in export of Live Animals and Vegetables products
with ASEAN countries rather than the ROW. In case of Animal or Vegetable fats and Prepared food
products, India had comparative disadvantage for all the years of the study.

The pattern of India’s comparative advantage with ASEAN has strong variations across
commodities. It is notable that India has enjoyed advantages at a comparative scale in the export of
meat, tea, rice, cereal and spices and was consistent over the study period. A similar kind of pattern
has been observed in export of vegetables and fruits but India has been losing its comparative
advantage to other exporters like China and The Philippines in recent years. However, for first 10 years
the Indian market enjoyed comparative advantages on those commodities. The study found some
issues requiring urgent attention. India is a big producer of those products but India is facing high
comparative disadvantages on marine products, milk products and coffee. This suggests that India has
to seek new markets other than ASEAN to export these products.

Overall, it is concluded that there is further scope for increasing the destinations of Indian
agriculture goods in ASEAN markets particularly in Vietnam, Thailand, Brunei, Cambodia and Lao PDR.
The sources of agricultural goods will be Indonesia and Malaysia in future. Moreover, the volume of
agriculture trade between India and ASEAN members is very low because India’s average tariff for
agriculture products is higher than that of the ASEAN countries. Hence, the study suggests direct the
policy initiatives to promote the products that have comparative advantage in exports. It will also help
producers and exporters to select appropriate commodities with comparative advantage for trading.
Efforts should be focused on promotion of exports like meat, vegetables and fruits, tea, rice and cereal
products for Indian exporters in ASEAN markets.