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Export Competitiveness of Indian Textile Industry: Revealed Comparative

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 Export Competitiveness of Indian Textile Industry: Revealed Comparative Advantage Analysis

Export Competitiveness of Indian Textile Industry:

Revealed Comparative Advantage Analysis
Rahul Dhiman1 and Manoj Sharma2
1
Assistant Professor, Chitkara Business School, Chitkara University, Punjab,
Email: rahul.dhiman@chitkara.edu.in
2
Assistant Professor, Department of Management & Humanities,
National Institute of Technology, Hamirpur (Himachal Pradesh)

Abstract: The major contributor for evaluating the progress of a nation depends upon the export of its industrial
products. The Indian textile industry contributes considerably in generating employment and industrial output
after agriculture as it provides employment to more than 40 million people. India is well-known for its cheap
labour as compared to the rest of the world. The present study makes an attempt and examines the export
competitiveness of Indian textile industry in the world market. The previous researchers predict an increase in
the Indian share of the world textiles and clothing trade as India gains the comparative advantage of cheap
labour. Therefore, the purpose of this research is to estimate the competitiveness of Indian textile products in the
world market by using Revealed Comparative Advantage index (RCA) during the period of 2010 to 2014 and
also to evaluate Compounded Annual Growth Rates (CAGR) of textile commodities. The competitiveness of
Indian Textile Exports is calculated with the help of Revealed Comparative Advantage (RCA) of different product
group of Textile industry under 02 digit Harmonised System Code HS 50 to HS 60. Compounded annual growth
rates of textile commodities and share of Indian textile exports in the world as well as India’s total exports from
2010 to 2014 has also been taken in to consideration. The researcher could not take in to account year 2015 due
to non availability of data in WTO data base. The results of the present research indicate that majority of the
textile products enjoy competitive advantage while some comparative disadvantage. The commodities found to
be competitive are Silk; Cotton; Vegetable textile fibresnes, paper yarn, woven fabric; Manmade filament;
Manmade staple fibers; Carpets and other textile floor coverings and Special woven or tufted fabric, lace, tapestry
as their RCA index is greater than one. Impregnated, coated or laminated textile fabric and Special woven or
tufted fabric, lace, tapestry are the commodities which are growing at swift pace. The study suggests that
government support is mandatory in order to transform the labor productivity and technology upgradation to
match the world standards.The present study also highlights various barriers towards the growth of export share
of India in world market and also offers suggestions to decision makers in order to enhance India’s export share
in the world market.
JEL Classification: F14; F40; F43
Keywords: Export Competitiveness; Export Performance; Revealed Comparative Advantage

295 International Journal of Applied Business and Economic Research

 Rahul Dhiman and Manoj Sharma

1. INTRODUCTION
1.1. Exports & Indian Textile Industry
Indian firms have exhibited the capability to globalize their operations in the world market in the post liberalised
period. India witnessed a noticeable appreciation in the volume of exports along with a move towards additional
capital, technology and skill intensive exports. Export is an activity wherein the products are manufactured in
home country but sold across different parts of the world. Export sector is considered as a medium for accelerating
the economic development. Exports support the flow of resources from low productive sectors to high productive
sectors, leading to an overall increase in output. Some countries are able to witness high economic growth due to
the significant pace in the global trade. Exports growth can affect total productivity growth through dynamic
spillover effects on the rest of the economy (Feder, 1983). The major destinations for exports depends upon the cost
of production in the world markets.The opportunity for exporting firms lies when the cost of production per unit in
the foreign market is on the higher side. India should explore more opportunities by creating demand of commodities
specifically in China and Bangladesh which are geographically closer as compared to other nations (Dhiman &
Sharma, 2016).There are large numbers of determinants which can influence the pace of the exports. GDP growth
rate, inflation, exchange rate, per capital income, productivity etc. are some of the determinants of exports. Another
critical determinant of export growth is the direction and destination of India’s exports. Several studies have focussed
in the area of identifying key factors affecting the export performance of the industry. Most of the studies have
focused on crucial variables such as Labor, Gross Domestic Product, Real affective exchange rate, Inflation, and
technology (Dhiman & Sharma, 2016).Another vital determinant of a country’s exports is its capability to offer
diversified goods. India’s export sector has seen a significant change in its export composition due to increase in
highly skilled people. Data from the Indian Census shows that literacy rates in India have increased significantly
since 1971 from just 34.5% to 74% in 2011 greatly improving India’s human capital and productive potential.
Further, data from the World Bank’s World Development Indicators (WDI) also shows that the number of Indians
with a vocational education increased from 40 per million in 1970 to 730 per million in 2011. The increase in
highly-skilled people has allowed India to diversify its export basket to include more skill-intensive and technology-
intensive exports. Further, it has also facilitated the absorption of imported technology (Roy, 2009).
Textile industry is a very diverse industry, with its products being used by virtually everybody. Textile
industry is referred to as “Traditional Industry” and also considered as leg of economy of the industry. It occupies
an important place in the economy as it has significant contribution towards industrial production, employment
and exports (Sharma & Dhiman, 2016). The industry is labour-intensive and it provides employment to those
with simple skills, including women. The countries such as Vietnam, Sri Lanka, Bangladesh, and Mauritius,
have high output growth in this sector (Chakrabarty, 2014). India’s textiles and clothing industry is one of the
mainstays of the national economy. It is also one of the largest contributing sectors of India’s exports across the
globe. The report of the Working Group constituted by the Planning Commission on boosting India’s
manufacturing exports during 12th Five Year Plan (2012-17) foresee India’s exports of Textiles and Clothing at
US$ 64.41 billion by the end of March, 2017. The textiles industry accounts for 14% of industrial production,
which is 4% of GDP; employs 45 million people and accounts for 13% share of the country’s total exports
basket. In the global exports of clothing, as per the UN Comtrade, 2013 data released in June 2014 India is
ranked as 2nd largest Textile and Clothing exporter in globe with USD 40 bn. As per UN Comtrade database, in
textile and clothing China is largest exporter followed by India, Italy, Germany, Bangladesh and Turkey in 2013
while in clothing export category China, Bangladesh, Italy, Germany, Vietnam and India are the major exporters
in their respective position. India is still highly competitive globally in the Textile sector. China is the main
leader in this segment but China is facing problems of cost of labour. So, India can benefit from an early
development of the skilled labour markets (Chakrabarty, 2014). Moreover, labour costs influenced textile and
apparel export performance in different ways among Asian developing countries. Higher labour costs are usually
accompanied with poorer export performance (Wang, 2013). Textile industry of India comprises of many

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 Export Competitiveness of Indian Textile Industry: Revealed Comparative Advantage Analysis

competitive commodities like textile yarn and thread. Such commodities are most potential commodities and
can accelerate the speed of exports (Sharma & Dhiman, 2014). India is the third largest producer of cotton,
second largest producer of silk, the largest producer of jute and the fifth largest producer of man-made fibres and
yarn. Previous studies have also focussed on various challenges faced by the industry. Ramaswamy, K.V. and
Gary Gereffi (2000) examine the challenges of India’s apparel exports in the global market. The study confirms
that India’s share of world apparel exports has not risen since 1994. The immediate cause is apparently the
slowdown in the import growth of India’s major markets, namely, United States and the EU. The policy reforms
of the 1990s have not significantly impacted the clothing sector as it is still subject to entry constraint (licensing
for large-scale plants). Verma (2000) finds that Indian textile and clothing industry is affected with numerous
shortcomings due to the uneven government strategy in the post-1947 India. But now it must change. It must
change if it is not be blown away by the global market forces, both in the global market as well as by imports in
the domestic region.

2. THEORETICAL FRAMEWORK
The concept of revealed comparative advantage (RCA) by Balassa (1965) is, widely used to analyze comparative
advantage gained by a country in various commodities. The theory of comparative advantage by Ricardo stated
that as long as the opportunity cost for one good change, each country gains a comparative advantage in the
production of one of the two goods. The Heckscher-Ohlin (H-O) model states that a country tend to export only
that good in which it has comparative advantage in terms of land, labour and capital as every country may not be
enriched with all the factors of production. So a country which is capital intensive tends to export capital intensive
goods and imports for labour intensive goods. Similarly labour intensive country exports labour intensive goods
and imports capital intensive goods. Comparative advantage gained by a country can be in terms of labour,
capital, land etc. Comparative advantage gained by a country makes him competent to manufacture a product by
adding additional value as compared to its competitors. The comparative advantage of a particular commodity
varies with time and the country’s structural variations. Comparative advantage can be calculated by determining
the relative pre-trade prices of the commodity, however this method of calculation is accompanied by difficulties
(Mahmood & Hajji, 2009). Balassa in 1965 created Revealed Comparative Advantage (RCA) index to calculate
the comparative advantage of a commodity which is widely used index in the academic literature. The index to
calculate the competitiveness of an industry facilitates to discover the present condition of an industry. The
result of index also helps the policy makers to plan accordingly so that measures to strengthen the competitive
advantage of an industry can be taken. RCA index is the most widely suitable tool for the research of this kind.
According to Wu & Lin (2008), Nicoliæ et al. (2011), Kuldilok et al. (2013), RCA index is associated with
several advantages such as (a) it is easy to calculate (b) widest used method in the academic literature (c) used
to underline economic competence of an industry (d) reveal country’s weak and strong export sectors (e) provide
arguments required for policy makers (f) evaluate country’s export specialization. Previous researchers have
used RCA index to calculate the comparative advantage gained by a country. Batra and Khan (2005) examined
comparative advantage at two-digit sector-level and six-digit commodity-level data based on the HS classification
for India and China. The two countries are homogeneous in terms of their factor endowments, economy size and
geography. RCA in manufacturing is found to be higher for both India and China after analysing factor intensity
while the dynamic RCA analysis confirms that India possess greater advantage in agriculture and allied products.
Mahmood and Hajji (2009) calculated the RCA index for nonpetroleum sector in Kuwait. The study classified
the different products into six groups namely food, live animals, beverages and tobacco, crude materials, chemicals,
and manufactured articles on the basis of their RCA values. The manufactured products namely machinery and
transport were not found to be gaining comparative advantage, while other products were found to be having an
improved RCA value.
The present study uses RCA index to examine the comparative advantage of producing textiles and clothing
with respect to India. The RCA index is calculated as the percentage share of a country’s exports of a particular
297 International Journal of Applied Business and Economic Research
 Rahul Dhiman and Manoj Sharma

commodity in a given sector divided by the share of the world’s exports of that commodity in the sector. If the
value RCA index is greater than one it is concluded that the country have revealed comparative advantage in the
commodity. RCA also provides the measures for distribution of a country’s exports in a specific sector as
compared with the world. If the estimated RCA is greater than 1, it can be concluded that the country’s exports
are moving closer to the pattern of the world’s exports at a relatively swift pace. With the change in the structural
variations in a country the comparative advantage of a commodity also changes.

3. OBJECTIVES OF THE STUDY

The present study has the following objectives:
1. To understand the structural changes in India textile export and their share in the world trade.
2. To examine the textile commodities gaining comparative advantage and disadvantage.
3. To highlight the leading textile export commodities and provide recommendations to the policymakers.

4. RESEARCH METHODS
4.1. Nature and Sources of Data
The present study is based upon the time series secondary data collected from various published sources of
Government agencies. The major data sources which will be used for the present study are UN Comtrade
database, International Trade Center and WTO data base. The study covers the period of 5 years i.e. from 2010
to 2014 for calculating RCA index, CAGR, Share of Indian textile exports in world and India’s total exports. The
study could not take in to account year 2015 due to non availability of data in WTO data base.

4.2. Techniques of Analysis

The present study calculates Compounded Annual Growth Rates (CAGR) for textile commodities for the specific
time period by using the following exponential function
Yi = a (bi)t
Log Yi = log a + t log (bi)
Where,
Yi = export value/ volume/ unit price of ith item,
t = time variable.
The Annual Growth rate (r) can hence be calculated using the formula,
r = [antilog (log bi) – 1] × 100
or
= (b – 1) × 100
where, b = Slope of semi-logarithmetic trend

4.3. Revealed Comparative Advantage (RCA) Index

There are numerous methods to compute export competitiveness such as revealed comparative advantage; market
share; unit value realization; and labour productivity indices (Prasad, 1997). The present study uses RCA index
developed by Balassa (1965). . RCA index is the most frequently used tool in the academic literature. The RCA

International Journal of Applied Business and Economic Research 298

 Export Competitiveness of Indian Textile Industry: Revealed Comparative Advantage Analysis

index also provides clear picture regarding specialization of countries in particular commodities. Balassa (1965)
used RCA index for the first time to calculate RCA of United States, Canada, Sweden and Japan. RCA index is
calculated as:

X itA
X tA
RCAitA �
X itW
X tW

Where,
RCAitA = Country A’s Revealed comparative advantage index of commodity i
XitA = Country A’s export of product i
XtA = Total exports of country A
XitW = World exports of product i
XtW = Total world exports

5. COMPOSITION OF INDIAN TEXTILE EXPORTS

The export of Indian textile industry is classified in to 14 principal commodities at 02 digit level. These 14
commodities are further divided in to 149 commodities at 04 digit level categorization. All those commodities are
assigned a universal code: Harmonised System (HS) code i.e. HS-50 to HS-63. HS 50 code is assigned to Silk; HS
51: Wool, animal hair, horsehair yarn and fabric; HS 52: Cotton; HS 53: Vegetable textile fibresnes, paper yarn,
woven fabric; HS 54: Manmade filaments ; HS 55 : Manmade staple fibres; HS 56 : Wadding, felt, nonwovens,
yarns, twine, cordage, etc; HS 57 : Carpets and other textile floor coverings; HS 58 : Special woven or tufted fabric,
lace, tapestry etc.; HS 59: Impregnated, coated or laminated textile fabric ; HS 60 : Knitted or crocheted fabric ; HS
61: Articles Of Apparel And Clothing Accessories, Knitted Or Corcheted; HS 62 : Articles Of Apparel And Clothing
Accessories, Not Knitted Or Crocheted; HS 63 : Other Made Up Textile Articles; Sets; Worn Clothing And Worn
Textile Articles; Rags. Our study takes into account the principal commodities at 02 digit level classification only
from HS 50 to HS 60 only. Table 1 presents the concise classification at 02 digit level.

Table 1
Classification of Indian Textile Commodities at 02 digit level
Product Code Name
50 Silk
51 Wool, animal hair, horsehair yarn and fabric
52 Cotton
53 Vegetable textile fibresnes, paper yarn, woven fabric
54 Manmade filaments
55 Manmade staple fibres
56 Wadding, felt, nonwovens, yarns, twine, cordage, etc
57 Carpets and other textile floor coverings
58 Special woven or tufted fabric, lace, tapestry etc.
59 Impregnated, coated or laminated textile fabric
60 Knitted or crocheted fabric

299 International Journal of Applied Business and Economic Research

 Rahul Dhiman and Manoj Sharma

5.1. India’s Contribution in Global Textile Exports & in its Total Exports
Global textile exports accounted to 606946 US $ Million in 2010. In the same year India’s exports were 27127.72
US $ Million with a percentage share of 4.46 per cent in the world trade.The highest percentage share achieved
by India was 5.26 percent in year 2013. In 2014 downfall has been observed and the percentage share of India
fell to 4.84 percent (See figure 1). Global textile exports has increased from 606946 US $ Million in 2010 to
5.40
India’s Share in World Textile Exports

5.20

5.00

4.80

4.60

4.40
2010 2011 2012 2013 2014
Year
Figure 1: India’s %age Share in Global Textile Exports

12.4

12.2
percentage of its Total Exports

12.0
India’s Textile Exports as

11.8

11.6

11.4

11.2

11.0
2010 2011 2012 2013 2014
Year
Figure 2: India’s Share in Textile Exports as % age of its total exports

International Journal of Applied Business and Economic Research 300

 Export Competitiveness of Indian Textile Industry: Revealed Comparative Advantage Analysis

797355 US $ Million in 2014. On the other hand Indian textile exports have seen variations in the global market.
In 2010 India textile exports accounted to 27127.72 US $ Million and improved to 33374.02 US $ Million in
2011. Afterwards considerable increase in the export has been observed and arrive at 40192.59 US $ Million in
2013. Again in 2014 downfall was observed and India’s textile exports accounted to 38597.45 US $ Million.
Figure 2 depicts the “V” shaped graph which confirms variations in the percentage share of Textile exports
in overall exports of India. India’s total exports was 220408.49 US $ Million in 2010 and textile exports in the
same year accounted to 27127.72 US $ Million with a percentage share of 12.3 percent. India’s textile exports in
the year 2011 accounted to 33374.02, however percentage share in total exports of India declined to 11.1 percent
(See Figure 2). In the year 2013, India’s textile exports arrive at at highest level and accounted to 40192.59 US
$ Million with a percentage share of 11.9 percent in total exports. The percentage share of textile exports in total
exports accounted to 12.2 percent in 2014.

5.2. Compounded Annual Growth Rates of Textile Exports

The Compounded Annual Growth Rates of textile exports at 02 digit level are calculated from 2010-2014. Nine
out of eleven commodities are found to be growing with positive CAGR. However, HS 50 and HS 53 have grown
with negative rate. HS 59 grew at very swift pace of 27.18 percent followed by HS 58 at 16.74 percent and then
HS 60 at 12.48 percent.

Table 2
Compounded Annual Growth Rates of Textile Exports
Product Code Name CAGR (2010- 2014)
50 Silk -19.71
51 Wool, animal hair, horsehair yarn and fabric 1.75
52 Cotton 9.18
53 Vegetable textile fibresnes, paper yarn, woven fabric -1.38
54 Manmade filaments 2.92
55 Manmade staple fibres 5.82
56 Wadding, felt, nonwovens, yarns, twine, cordage, etc 9.35
57 Carpets and other textile floor coverings 9.39
58 Special woven or tufted fabric, lace, tapestry etc. 16.74
59 Impregnated, coated or laminated textile fabric 27.18
60 Knitted or crocheted fabric 12.48
Source: Author’s own calculations

5.3. Export Competitiveness of Indian Textile Industry

After examining the export competitiveness by RCA index it can be concluded that seven commodities enjoy
comparative advantage as their RCA index is higher than one (RCA>1) (See Table 3). These commodities (HS
50; HS 52; HS 53; HS 54; HS 55; HS 57; HS 58) are more competitive in the world market as compared with the
remaining four commodities. The commodities which are found to be having comparative disadvantage or
having value less than one (RCA<1) are: HS 51; HS 56; HS 59; HS 60.

6. CONCLUSION
The outcomes of the study draw attention to the fact that even though India has not been able to enlarge its
contribution in world clothing trade at a speedy pace but still some textile commodities has gained comparative

301 International Journal of Applied Business and Economic Research

 Rahul Dhiman and Manoj Sharma

Table 3
Export Competitiveness of Indian Textile Industry
Commodity Code RCA (2010) RCA (2011) RCA (2012) RCA (2013) RCA (2014)
HS 50 7.00 4.63 3.26 2.90 4.56
HS 51 0.76 0.80 0.81 0.62 0.79
HS 52 8.05 6.58 7.97 8.86 7.23
HS 53 6.22 5.22 5.26 4.26 5.13
HS 54 3.63 3.24 3.04 3.01 3.16
HS 55 3.27 3.22 3.20 2.97 3.12
HS 56 0.81 0.77 0.86 0.79 0.76
HS 57 6.47 4.95 5.68 5.89 5.74
HS 58 1.40 1.13 1.28 1.69 1.41
HS 59 0.44 0.37 0.46 0.51 0.49
HS 60 0.37 0.50 0.43 0.44 0.43
Source: Author’s calculations.

advantage. The RCA investigation of textiles and clothing reveal that the majority of the products of Indian
textile industry have performed superior in the global market by gaining comparative advantage in world market.
The commodities which enjoy value of Revealed Comparative Advantage higher than one are: Silk; Cotton;
Vegetable textile fibresnes, paper yarn, woven fabric; Manmade filament; Manmade staple fibers; Carpets and
other textile floor coverings and Special woven or tufted fabric, lace, tapestry etc. The commodities which are
growing at rapid rate includes Impregnated, coated or laminated textile fabric and Special woven or tufted
fabric, lace, tapestry.

6.1. Recommendations of the Study

An industry may have potential comparative advantage, which is presently not realized because of either skill
shortages or infrastructure deficiencies making the industry non-competitive. Industrial policies must be framed
in a manner so that all the obstacles to competitiveness can be removed. Such obstacles can be in the form of
skill shortages and infrastructure deficiencies. An important task in front of the policy makers is to recognize the
sources of comparative advantage. Moreover the government intervention is very important for technology
upgradation and exploring the opportunities worldwide in order to increase the contribution of Indian textile
exports in the world trade.

6.2. Limitations of Research

The present study focussed on textile commodities at 02 digit level. The future researchers are encouraged to
carry out the research at more disaggregated level i.e. HS-04 digit classification. The present study did not take
in to account various factors which may impact the competitiveness of textile exports. Therefore, the future
studies can be done by taking into account various determinants such as labour productivity, unit labour cost,
real effective exchange rate etc. which are impacting the export competitiveness of textile products.

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