A STUDY ON INDO US TRADE RELATIONS WITH REFERENCE TO

MANUFACTURING SECTOR

A Project report of under graduate in economics

Submitted
By
V.ASHWIN KUMAR (REG. NO. 2013271018034)
Dr. T. RAGHU, MA, M. PHIL, PH.D
Assistant Professor in Economics

P.G. AND RESEARCH DEPARTMENT OF ECONOMICS

RAMAKRISHNA MISSION VIVEKANANDA COLLEGE
MYLAPORE, CHENNAI-600 004

2022 - 2023

1
 CERTIFICATE

This is to certify that the project report entitled “A STUDY ON INDO US TRADE

RELATIONS WITH REFERENCE MANUFACTURING SECTOR” is a bonafide work

of V. ASHWIN KUMAR , Register No: 2013271018034 , who carried out the internship

project work under my supervision during December 2022 to March 2023 for the partial

fulfilment of the award of the Bachelor of Arts.

Signature of the Guide Signature of the HOD

Date:
Place:

2
 DECLARATION

I V. ASHWIN KUMAR, Register No: 20131271018034 final year under Graduate

student of the Department of Economics, Ramakrishna Mission Vivekananda College,

Chennai, hereby declare that this project report entitled “A STUDY ON INDO US TRADE

RELATIONS WITH REFERENCE MANUFACTURING SECTOR” is an original

work

done in partial fulfilment for the award of degree in Bachelor of Arts in Economics by the

University of Madras.

I further declare that it had not been previously submitted for any reward of any

degree, diploma, associate fellowship or other similar titles.

PLACE: Chennai

DATE: V.ASHWIN KUMAR

3
 ACKNOWLEDGEMENT

I take this opportunity to thanks to express my gratitude and indebtedness

to Dr. T.JAGADEESHAN, Principal and Head Dr. A.Selvaraju, Head of the Department,

P.G, and research Department of Economics, Ramakrishna Mission Vivekananda College,

for his sincere guidance and valuable suggestions for the completion of my project.

I express my gratitude to Dr.T.RAGHU, Assistant Professor, P.G. and

Research Department of Economics, Ramakrishna Mission Vivekananda College, for his

valuable guidance which helped me in complete the report.

I take this grand opportunity to express my everlasting thanks to the

Professors Dr. X. Vincent Jayakumar, Dr. T.Chandramouli, DR. V. Raju, Dr.

K.Chandrasekaran, Dr. K, SURESH, and Dr.S.K.Prakash, and Dr. A.Kasirajan for their

valuable teaching and continuous encouragement in my subject as well as for my career

growth.

This project report is an output of valuable contribution from certain people and I

take this opportunity to specially thank to all the people concerned who made my project

work reality. Above all I thank the ALMIGHTY GOD who showered me with all his

blessings to accomplish this project.

PLACE: Chennai

DATE: V.ASHWIN KUMAR

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 TABLE OF CONTENTS

CHAPTER DESCRIPTION PAGE NO.

1. 1-7
Introduction

2. 1-7
Review of literature

1-7

3. Data Analysis

1-7

4. Conclusion and suggestion

1-7

5.

5
 Bibliography

6
 Chapter 1

Introduction

India and America are the primary examples of democracy in the world. In
1949, diplomatic relations between modern India and America started during the
tenure of US President Henry Truman. But at this point, the philosophy of Nehru was
communist and the ideology of liberalism was taken out by America. The Indo-US
friendship, as a result, was just a formality. Together with Pakistan, the United States
created a Central Treaty Organisation (CENTO) in 1954 that did not suit India.
Because of this, India strengthened relations with Soviet Russia. India became part of
the nonaligned movement in 1961, taking itself away from the Cold War. After this,
America helped Pakistan directly with the assistance of China in the Indo-Pakistan
War of 1971, but when India won the war, the US found India a great force in South
Asia and sought to improve relations with India.

After this, in 1991, Soviet Russia divided, after which relations between India
and America improved. Since then, the relationship between India and America has
seen several ups and downs. The US did not like it in the 90s when India was rising as
a developing market. Because of this, the US publicly opposed it when India
conducted a nuclear test in 1998. Bill Clinton, the then US President, threatened to
bring an end to all ties with India. Yet they recognize the meaning of India in the
militant movement since the attack on the World Trade Centre in America on 11th
September 2001.

In 2002, the joint session was addressed by Atal Bihari Vajpayee and laid the
framework for new ties between India and America. Relations between India and
America changed considerably during the tenure of former Prime Minister Atal Bihari
Vajpayee. The 2008 Indian-US Civil Nuclear Agreement further enhanced ties
between India and the United States. The relationship between India and the US was
significantly enhanced by Barack Obama and international cooperation between the
two nations improved and trade increased. U.S. President Barack Obama visited India
7
in 2010 and met Indian businesses and dedicated himself to various issues, such as
investment in India and technology transfer.

The second visit of Barack Obama to India in 2015 brought India and
America's relationship to new heights as India's Prime Minister Narendra Modi, along
with the US, entered into multiple deals on global terrorism to eradicate and establish
peaceful coexistence as well as expressing a commitment to work together on
international problems, such as, climate change, terrorism, hunger, malnutrition,
human rights. On several topics, this brought the two countries closer. Donald Trump
became America's first president in 2017. The friendship between India and America
further enhanced during this period. From the outset, the stance of Donald Trump
towards India has been very special. After Donald Trump became president, Prime
Minister Modi was the first foreign minister to visit the White House. During his US
visit, Narendra Modi made multiple agreements between the two nations.

Importance of Manufacturing Sector

Manufacturing has historically played a major role in countries' economic

growth and development. The importance of production has declined in developed
countries over the last 20-25 years, resulting in de-industrialization. Industrialization
or an increase in the share of output in the gross domestic product (GDP) is, therefore,
an important aspect of modern economic growth.

Manufacturing has traditionally been the backbone of both developed and

emerging countries. This is where R&D starts, where innovative ideas are born, where
new and developed systems, products and technologies are challenged by scientists
and engineers and others to create.

In the last decade, India has emerged as one of the fastest-growing economies.
Our services sector contributes to 54.13%, while the industrial sector contributes
18.32%. Agriculture accounts for 14.39%. The need for "products" to absorb such a
low manufacturing contribution is not a healthy indication, considering our wide
domestic market.

At all stages, manufacturing creates multiple workers. It is critical as the

generation of a job. Manufacturing distributes income evenly among the population
among all industries (service, agricultural, social, and manufacturing); pulling people
above the poverty line is a significant factor. Manufacturing has contributed 30 to 50

8
per cent to GDP in rapidly emerging Asian countries such as, Thailand, Indonesia,
Malaysia, Taiwan, the Philippines, Korea, and China, and thereby helped to alleviate
poverty. In comparison, in the last 10 years, the Indian manufacturing sector's
contribution to GDP has grown from 16 percent to 18.32 percent.

Policy reforms have been implemented by the Government of India since 1980,
but they were the most drastic reforms since 1991, followed by a serious economic
recession in the 1990-91 financial year. These reforms were intended largely to
improve the productivity of the industrial industry and to increase foreign
competitiveness. The rupee refused to boost exports. Around the same time, several
capital goods, items where imports do not have to be authorized by government
officials, were added to the list.

Furthermore, product licensing limits have been reduced or eliminated for a

wide variety of manufacturing inputs, although the overall limit of import duty has
been lowered. Further, it was reflected in Naharbandi system. International funding
has now been liberalised. As a result, up to 51 percent of high-priority FDIs were
automatically approved sectors. It has liberalized or eliminated industrial licenses.
Furthermore, the Act on Monopolies and Restrictive Trading Policies and staggered
development programs have been completely abolished. The number of reserved
public sector enterprises (PSE) for companies was also limited. Markets in general
became more open liberalization policies when they were adopted. In the first
instance, the separate domestic promotion of regulations (i.e. industrial licenses,
MRTP, etc.) encouraged small market competitiveness. Secondly, in order to
maximize international investment, competition between local and foreign firms is
limited. In addition, new strategies have typically been adopted with programs of
liberalization. Second, local R&D spending companies have grown due to domestic
competition. Second, emerging innovations have been adopted explicitly by
international corporations as a result of FDI. Fourth, the manufactured products
adopted by trade liberalization also implemented modern technologies.

Picture of Indian Economy

On August 15, 1947, India was granted independence. The Indian government
has announced five-year proposals for the country's growth. India's first five-year
programme began on April 1, 1951. The trajectory of India's development has seen
multiple ups and downs from the first to the twelfth five-year plans. The history of
9
India's progress can be split into two stages. The first phase is referred to as the
preliberalized phase, and the second phase is referred to as the post-liberalized phase.
Before the liberalisation of the Indian economy, the country's economy was split into
two distinct sectors: private and public. Under the protection of the government, the
commercial sector was owned and run by private entrepreneurs in small and
mediumsized companies. The government's key function was to include transportation
and correspondence, which included mail, telephone, telegraph, radio, and television
broadcasting, among other items. The public sector offered social services, such as,
health and education. The government's primary target was to deliver these
programmes at an affordable cost. India implemented five-year growth strategies to
strengthen housing, irrigation, health care, and schooling. However, due to domestic
causes, construction progress has been incredibly slow. To achieve the targeted growth
in various five-year plans, the Indian government changed policies from time to time.

The Harrod-Domer model was used in the first five-year plan (1951-56). This
five-year plan's growth goal was 2.5 percent. The nation faced a variety of issues
under this programme, including refugee challenges, food shortages, and price hikes,
among others. The government concentrated on agriculture, price stability, and power
and transportation facilities to settle the problems. In terms of achieving real progress,
this strategy was a success (i.e.3.6 percent). Strong harvesting in the last two years of
the plan was the key explanation for this real development. Other goals, such as
refugee settlement, food self-sufficiency, and market stability, were more or less met.

The Nehru-Mahalanobis model was used in the Second Five Year Plan
(195661). The plan's goal was to reach a growth rate of 4.5 percent. To accomplish
this goal, a strategy of economic stability and rapid industrialization was implemented.
However, this industrialization was only possible with international loans. The
socialistic pattern of society was also used to develop the second industrial policy
(1956). Since real growth was only 4.3 percent and foreign exchange reserves were in
short supply, this strategy was only marginally successful. There was also a 30 percent
price increase.

The economy has reached the "take-off era" in the Third Five-Year Plan
(196166). This plan's target was 5.6 percent. The plan's main aim was to make India a
selfsufficient and self-generating country. This strategy was built based on the lessons
gained from the previous two plans, and agriculture was given top priority in order to

10
promote exports and industries. Just 2.8 percent of the plan's actual development was
accomplished. The Indo-China War (1962), the Indo-Pak War (1965), and the 1965-66
drought all conspired to derail this strategy.

The Third Five-year programme, the Indian government initiated three annual
schemes (1966-69), called "Plan Holiday." Because of the crisis in agriculture and the
food deficit in the Indian economy, this year's annual strategy centred on agriculture.
The modern agriculture policy, popularly known as the green revolution, was adopted
as part of this programme. High-yielding crops, widespread fertiliser use, irrigation
capacity utilisation, and soil restoration were all part of the green movement. As a
result, agriculture production, especially wheat and rice, increased dramatically during
this annual plan.

The Fourth Five-Year Plan (1969-74) was initiated with the goal of "stable
development and progressive self-sufficiency." This strategy emphasised the
expansion of agriculture in order to enable other sectors to progress. Agriculture
output reached new heights in the first two five-year plans, but then fell due to
unfavourable monsoon conditions. This plan's main goal was to get the Family
Planning Programs up and running. Due to Bangladeshi refugees before and after
1971, as well as price rises, the plan did not achieve its target expansion. This
initiative just grew at a rate of 3.3 percent.

D.P. Dhar drafted and implemented the Fifth Five-Year Plan (1974-79). He
drafted this proposal to keep the economy from crashing due to inflation triggered by
rising oil prices. The aim of this strategy was to reach a 4.4 percent growth rate by
greater income allocation. For the first time, India included poverty as a major social
issue in this programme. As a result, the Indian government proposed two goals: one
was to eliminate hunger, and the other was to achieve self-sufficiency. The actual
growth rate reached in this plan was 4.85 percent, but high inflation, incorrect cost
calculations for the plan duration, the 1975 emergency, and the delay in implementing
Prime Minister Harold Wilson's 20-point policy all hampered the fifth plan's progress.
When the Janta Party came to power in 1978, the five-year programme was cancelled.

The Janta Party government ended the fifth plan a year before, it was replaced
with rolling plan as the sixth year plan (1978-83), but the government did not
complete its term. During the rolling programme, the Janta government did not
complete its term, and it was blamed for consolidating power, growing inequality, and

11
poverty. When the Congress assumed control, it re-adopted the sixth year of the five-
year programme.

The Sixth Five-Year Plan (1983-85) aimed for 5.2 percent growth with the
goal of increasing national income, modernising infrastructure, ensuring sustained
poverty reduction through programmes like Training Rural Youth for Self
Employment (TRYSEM) and the IRDP, and managing population growth. Aside from
a serious drought in the plan's final year (1984-85), real growth was 5.7 percent, which
was higher than the plan's target growth.

With an emphasis on ‘meal, jobs, and competitiveness,' the Seventh Five Year
Plan (1985-90) aimed for a 5.0 percent growth rate with the goal of accelerating food
grain production, growing job prospects, and raising productivity. The strategy was a
major achievement, as the economy expanded at a rate of 6% instead of the planned
5%.

U.S. Economic History

The end of World War II represented the beginning of a time of relative

prosperity for the United States. This time was characterised by a wave of financial
migration and profitability, a growing and more wealthy middle class, and the
ascension of the post-World War II generation. The United States' Gross Domestic
Product rose at a steady average rate of nearly 4% from the late 1940s to the mid-
1970s. The economy had turned away from manufacturing assembly into
administrations by the 1970s. Nonetheless, following a very long while of phenomenal
development, the economy started to give indications of easing back and a progression
of occasions, including the breakdown of the Bretton Woods framework, the 1973 oil
emergency and expanded worldwide rivalry, hastened significant monetary changes.
The 1970s were set apart by a time of deteriorating development and swelling alluded
to as "stagflation".

The 1980s offered ascend to Reaganomics, a progression of monetary

strategies advanced by President Ronald Reagan. The fundamental goals were
decreased government spending and guideline, just as lower charges and a more tight
cash supply. Reagan was exceptionally effective in upgrading the assessment code and
pushing ahead with liberation in a few significant areas of the economy; and keeping
in mind that development and profitability expanded, the public authority's obligation
increased altogether. From a more extensive perspective, Reaganomics denoted a
12
move in the direction of unregulated economy supply-side financial aspects and away
from the Keynesian-enlivened financial matters that had been supported since the
Economic crisis of the early 20s.

Expanding worldwide joining and the ascent of new innovation, including the
reception of efficiency improving IT in the working environment and the flood of
cutting edge organizations, helped fuel a period of prosperity during the 1990s. The
time frame somewhere in the range of 1993 and 2001 denoted the longest supported
development in U.S monetary history, and fueled a lofty ascent in work, pay and
customer interest.

In addition, the solid development and low joblessness during this time were
especially striking on the grounds that the public authority spending plan was reigned
in at the same time and really accomplished an excess for a very long time somewhere
in the range of 1998 and 2001. The monetary improvement was made conceivable to
some degree by charge increments presented by President Bill Clinton, yet
additionally because of the flourishing economy and flooding financial exchange.
authority on capital additions charges and rising pay rates. In any case, the
overvaluation of website stocks at last became obvious and the air pocket burst in
2000.

The primary long stretches of the 2000s saw a sharp drop in economy
movement following the website burst. The fear based oppressor assaults on
September 11, 2001, and a few corporate outrages put down financial action and
business certainty. The Central bank (the Fed), under Alan Greenspan, stepped in to
neutralize the striving economy by presenting low financing costs. We have selected
eighteen 2-digit manufacturing item of Export and Import only in our study. Tobacco
and manufactured tobacco substitutes, Inorganic chemicals, precious metal compound,
isotope Organic chemicals, Pharmaceutical products, Fertilizers, Plastics and articles
thereof, Rubber and articles thereof, Wood and articles of wood & wood charcoal,
Paper & paperboard, articles of pulp, paper and board, Cotton, Special woven or tufted
fabric lace tapestry etc, Other made textile articles sets, worn clothing, etc, Pearls,
precious stones, metals, coins, etc, Iron and steel, Copper and articles thereof, Nickel
and articles thereof, Tools implements cutlery etc of base metal, Electrical, electronic
equipment, Vehicles other than railway.

13
Current position of Indo-US trade

India is USA’s ninth largest goods trading partner.

➢ US goods export to India $33.5 billion

➢ US goods import from India $54.3 billion in 2018 ➢ $54.8 billion total US-
India trade in services.
➢ U.S services exports $25.2 billion,
➢ services imports from India $29.6 billion in 2018
➢ U.S. buys from India
➢ pharmaceuticals $6.3 billion
➢ machinery $3.3 billion
➢ minerals fuels $3.2 billion
➢ vehicles $2.8 billion
➢ what India buy from precious metal and Stone( diamonds) $ 7.9 billion
➢ mineral fuels $6.7 billion
➢ aircraft $2.9 billion
➢ machinery $2.2 billion
➢ organic Chemicals $1.6 billion

Chapter2

Review of Literature

This section of the study is devoted to a literature review. The aim of reviewing
previous researches is not only to study the economics of the historical perspective of

the current work, but also studies that have taken into account the manufacturing
sector, direction of trade and export-import performance. These studies may assist the
investigator in designing the present study in such a way that recurrence of flaws and
pitfalls observed in any previous study is avoided. Alternatively, their findings may be
used to aid in the analysis of the current study's findings where appropriate.

14
 Trade has been an important operation for any nation's growth in recent years.
Countries all over the world want to extend their markets through bilateral and
multilateral trade agreements, and the exchange of goods and services increases as
barriers are reduced. Why does a country want to trade? To address both of these
questions, what is the basis for exchange and what do they reap from trade? Various
foreign trade theories have been identified, including classical theories (absolute
advantage, competitive advantage), modern theory - Hecksher-Ohlin theory, new trade
theory, and the Gravity model, all of which are important to understand the pattern and
performance of trade flows between countries.

Absolute and comparative advantage theory of international trade

In his book “the wealth of Nation” published 1776 Adam smith postulated the
Absolute advantage theory. According to him trade between the nations is based on
absolute advantage, both the country will gain if a country specialize in the production
of goods
in which he can produce more efficiently than others, at the same time other country
produces with less efficient in which he has an absolute disadvantage in line of
production. This way both the nations will gain, that is a country export goods in
which he has absolute advantage and import in which he has absolute disadvantage.
However there is little evidence of trade happening on the basis of absolute advantage
theory.
David Ricardo tried to answer Smith’s theory of absolute advantage in which he stated that,
even if one nation is less efficient than others in the production of both goods, international
trade would be beneficial bringing gain from trade to all the participating countries. In his
model of comparative advantage a country will specialize in the line of production in which
its efficiency is the maximum and the other country will specialise

first will produce and export the first good and import the the second good. It is based
on different cost of production of a commodity across countries. In the present world
large part of trade is explained by comparative advantage theory.

New trade theories:

This theory is associated with an economist Pal Krugman, Markusen, Helpman,
Lancaster and many others. The theory explains world trade based on the economies of
scale, product differentiation and imperfect competition by easing strict assumption of
classical
theory. Based on imperfect competition, even if there is no difference in factor

15
 endowment, taste and preference and technology, economies of scale
will lead to trade between two countries. This theory explains intra-industry trade at
different stages of production or same stage of production due to varieties of product
demanded.

Literature Review

T N Kaul1 (1974), is of the view that relations between sovereign independent

countries and nations, especially between two of the world's largest democracies, India
and the United States, should not be judged solely on the basis of the current or recent
past, but rather on the basis of past history and future prospects. Passing periods of
sentimentality or frustration arising from the fact that the two democracies are prone to
believe that they can and must compromise on anything should not be taken too
seriously.

Phiroze B. Medhora2, (1980), in his paper - "Trade and aid:

approach to fourth plan", presented the economic ties between 1969 and 1974. At the
time, India was a net exporter of conventional products, such as, jute, cashew, cotton,
fish, and other seafood, and a net importer of capital goods such as machinery and
transportation equipment. Fertilizer imports were estimated to have risen significantly in
recent years. Financial assistance for agricultural imports should be phased out in three
years, and dependence on aid, including food aid, should be reduced by half during the
fourth plan duration, according to the approach to the fourth plan.

Devis, K.R. (1982)3, Wrote a paper, titled, "India's Trade with

American Countries," focusing on India's export and import volumes in

relation to American countries. In terms of trade with India, the United States holds
the top spot. Mr. Devis explained that conventional and agricultural products
accounted for the majority of India's overall export volume, while industrial goods
accounted for the majority of imports, causing the import volume to surpass. The
study recommended several steps to improve India's trading system with the United
States.
1
T.N Kaul - 1974 ( T.N. Kaul materials in the South Asian American Digital Archive (SAADA)

2
Phiroze B. Medhora - 1980(Trade and aid: approach to fourth plan)

3
Devis K.R - 1982 (India's Trade With American Counties)
16
 H.K. Lahauri4, (1984), in his study, "India's Trade with the United States:
Challenges and Solutions," identified some issues, such as, organisational issues,
environmental issues, and marketing issues, that impacted Indian trade. Making a
thorough examination of the different issues, the author concluded that the Indian
international trade system needs not only liberalisation or structural improvements,
but also certain fundamental changes. The researcher has also made
recommendations for improving India's trade efficiency with the United States.

Love, J. (1986)5, this work is the first effort to use modern time series
econometric tools to investigate the impact of export volatility
on economic growth. In this work, we examine the connection between export and
import using time series data.

B.M. Jain6 (1988) in his paper indicated that the current political disparities on
a number of global and regional problems will continue to influence Indo-US
relations. There is no probability that their inherent gaps in approaches to global and
international policy can be dissipated by both nations. This is due to the fact that a
superpower is interacting with India, a regional power. It is also inconceivable that
India uses strong strength within a power system model to control the critical
4
H.K Lahauri - 1984 (India's Trade with the United States Challenges and Solutions)

5
Love, J. - 1986 (The Impact of export volatility on economic growth)

6
B.M.Jain – 1998 (Indo US realtions)

17
 decisions of the US on global issues. It has made it all the more difficult for
intermediary forces like India to play a mediating role as both superpowers have
proven their willingness and political will to settle problems bilaterally, which is clear
from the ratification of the recent INF treaty.

Man Singh7, Mr. (1992), made a study on "Close and robust Indo-US links" stated

that political connections have an effect on the two countries' trade relations. Despite
substantial economic liberalisation in India, the US was dissatisfied with what it saw
as "unjust" and "inequitable" trade barriers. India's tariffs were considered to be
excessive. The second point of contention in trade ties was quantitative limits enforced
by a licencing system, which led the US to regard India's economy as strongly
protectionist.
He proposes controlled markets as a better alternative to free trade. He did not advocate

regulated commerce as a replacement for general agreement to remove obstacles, such as

the GATT, but only for specific countries.

Rahman8, P. (1992), in his study on "India's trade with America since 1950"
explained various fields such as, trade, investment, technology cooperation, and
assistance from the United States. This researcher has argued that India has enormous
investment opportunities in a variety of fields. There were even greater potential
opportunities for service trading.

J. P. Sarine (1993)9, reveals in his paper "Determinants of International Trade"

that the United States will continue to be the largest trading partner in the medium and
long run. The researcher also noted that the cost effectiveness of Indian products
would be a major driving factor in increasing the amount of Indian exports and the

7
Man Singh, Mr - 1992 ( Close and Robust Indo-US links )

8
Rahman, P. - 19 9 2 ( India's Trade w ith America since 19 5 0 )

9
J.P.Sarine – 1993 (Determinants of International Trade)
18
 consumer penetration in the United States. According to the analyst, India's exports to
the United States account for a very limited percentage of the country's imports. As a
result, the fear that the Indo-US trade surplus was detrimental to the United States,
which was not well established on economic grounds, was unfounded.

Dr. Francis Cherunilam10, (1993), in his research on the topic -"USA and its
trading partners," said that the United States is the world's most strong economy. In
the research, it is briefly mentioned that India is the most powerful economy in
Southeast Asia. India and the United States have a healthy trading relationship and
India has a large market for American capital goods. The study also recommended
liberal approaches that could lead to improved future prospects for both nations. It is
also said that while India did not contribute much to total US exports, there were still
more opportunities to expand India's trade with the US.

Subroto Roy11 (1997), found in his study on "Indo-US Trade and Economic
Cooperation", that the United States is India's single most significant source of
imports, with Germany and Japan trailing far behind. According to the report, India's
export basket to the United States is far more diverse than India's import basket. Mr
Roy outlined the overall story of Indian trade with the United States by stating that,
while the long-term trade composition has improved over thirty years, it is still
insufficient.

Bishnu priya Gupta12 (1999-2000), clarified the trade mechanism and FDI
movement of the United States into India in their paper "Indo-US Trade: A Profile."
According to their views, there is a huge opportunity for increasing technology flow
10
Dr. Francis Cherunilam – 1993 (USA and its Trading Partners
11
Suburoto Roy – 1997 (INDO-US Trade and Economic Cooperation)
12
Biahnu Priya Gupta – 2000 (Indo – US Trade; A Profile)
19
between India and the United States in order to fulfil the technology needs of Indian
industry. However, there are certain restrictions on both sides that restrict those flows,
but there is enormous potential for better trade in the current economic

climate.

C. Ranga Rajan13 (2001), in his paper to his paper, "Saga of Paradigm Shifts,"
indicatedthat import substitution was a main plank of India's foreign trade agenda, and
the planners almost wanted to disregard foreign trade as a source of economic
development. This was mostly due to a negative assessment of export earnings
prospects. The emergence of a large domestic market gave additional fuel to the
inward focus. In retrospect, the author believes that policymakers underestimated not
only the export potential, but also the import speed of the import substitution
mechanism itself.

Chia Boon Khor14 (2001), looked at the relationship between FDI and Malaysian
economic development. The researchers discovered bidirectional causation between the

two variables. It implies that rising GDP attracts FDI, and that FDI also helps to rising
output. It was also discovered that FDI had a significant influence in the
diversification of the Malaysian economy, resulting in the manufacturing sector being
a development engine.

13
C. Ranga Rajan – 2001 (Saga of Paradigm Shifts)
14
Chia Boon Khor – 2001 (Bi-Directional Causation between the two variables
20
 Somasri Mukhopadhyaya15 (2001), in his paper on “Uruguay Round and
India’s Export Response” has tried to analyze whether Uruguay Round has been a
success story for international trade with particular reference to India. He mentioned
that there has been a significant decrease in global trade growth since 1997. He cited
two geopolitical events: the 1997 currency crisis in Southeast Asian countries and the
adoption of the Euro currency. He brings up the non-materialization of the
commitments that developing countries have agreed, especially in the agricultural
sector. Another element mentioned by the author in the sense of MFA phase-out is the
textile industry.

Rahman16 (2003), used the gravity model to assess India's trade with its major
trading partners. He came to the conclusion that the scale of markets, per capita GNP,
and trade transparency all have a positive impact on Bangladesh trade. Furthermore,
he discovered that transportation costs are a major factor adversely affecting
Bangladesh's trade, and that country-specific results suggest that Bangladesh will
benefit from trading with its neighbours.

L. Alfora17 (2003), used cross-country data from 1981 to 1999 to examine the
influence of foreign direct investment on growth in the primary, secondary, and
tertiary sectors. Total FDI has an unclear influence on growth, according to the
research, but it does play a substantial role in supporting growth in the primary,
manufacturing, and service sectors by transferring technology and managerial know-
how, educating employees, and introducing new procedures. The study also
discovered that FDI flows into different sectors had varied effects on economic
growth; FDI has a negative influence on growth in the primary sector, a positive
benefit in the manufacturing sector, and an unclear impact in the service sector.

15
Somasri Mukhopadyaya – 2001 (Uruguay Round and India’s Export Response)
16
Rahman – 2003 (India Trade with its major trading partners)
17
L.Alfora – 2003 (The Influence of Foreign Direct Investment on Growth)
21
 Aradhana Aggrawal18 (2004), in her article deals with economic liberalisation
and more objective assessment. It is important to rigorously evaluate the local
situation, or the policies that give rise to undesirable outcomes. Therefore, in order to
facilitate assessment of policy suitability in the local environment, input from these
policy results needs to be obtained. This analysis of the effect of tariff reductions on
Indian exports to the United States is a step in the right direction. At the 4-digit stage
of disaggregation, the study of the Post Uruguay Round experience indicates that
India's exports were price elastic in 44 of 81 goods. These products include items that
are labour-intensive, resource-intensive, and technologically advanced. With more
tariff reductions arising from the Doha Round negotiations on non-agricultural goods,
there appears to be potential for India to extend its exports to US markets for these
goods. This suggests that reducing tariffs may be a significant contributor to the export
output India.

L .Ganesh 19 (2 0 0 5 ), in his article, “Free Trade Agreement –Grow th or

Distortion?” has emphasized that Free Trade Agreements are essentially bilateral
agreements or multilateral agreements among a group of countries as against universal
agreements envisagesed by WTO among all members. Free Trade Agreements
championed by the US and Europe through the WTO have been facing a number of
obstacles.

Boughanmi 20 (2008), looked into the Gulf Cooperation countries' trade

prospects. To estimate bilateral trade betw een Middle East and North Africa
countries and their trading partners,he used a gravity modelbasedon
pooledtimeseries and cross sectional data. His findings show that the recently
concluded trade agreements have opened up new trade prospects in the Gulf
Cooperation Council.

18
Aradhana Aggrawal – 2004 (Economic Liberalisatioon and more objective assessement)
19
L.Ganesh – 2005 (Free Trade Agreement – Growth or Distortion)
20
Boughanmi – 2008 (The Gulf Cooperation Countries Trade Prospects)
22
 R. Banga21 (2006), in his paper focused on the effect of foreign direct investment
(FDI) on export diversification in a developing world. If FDI has a positive impact on
the export
strength of industries with a low share of world exports, it can contribute to export
diversification in the host country. Indirectly, FDI may promote export diversification
by spillover effects: the involvement of FDI in a sector may increase the export
strength of domestic firms. The empirical findings for the Indian economy in the post-
liberalization context suggest that FDI from the United States has resulted in both over
and indirect diversification of India's exports. FDI from Japan, on the other hand, has
had no discernible effect on India's exports.

Tri Do22 (2006), looked at the bilateral trade between Vietnam and the
twentythree European countries using the gravity model and panel data from 1993 to
2004. According to his calculations, the business size, economic size, and actual
exchange rate of Vietnam and the twenty-three European countries played a significant
role in bilateral trade. The findings showed that Vietnam's trade was increasing in a
positive direction.

Using a survey of 146 countries, Batra 23 (2006) used an augmented gravity

model to study India's global trade traffic. He discovered that all three standard
gravity effects are statistically important, with t figures often reaching 50 in absolute
value, and that various measurements of GNP dollar value and PPP had little impact
on the sign or importance of different explanatory variables. India and China have
enormous potential, with trade potential more than doubling, if trade barriers and
constraints are eli

21
R.Banga – 2006 (The Export – Diversifying impact of Japanese and US FDI)
22
Tri DO – 2006 (A Gravity Model Analysis for Trade between Cameroon and 28 EU countries)
23
Batra – 2006 (India’s Global Trade Potential: The Gravity Model Approach)
23
 H. M. Sanjeev Kumar 24 (2008), discussed different facets of Indo-US relations
in the context of US foreign policy formulations since the Cold War. The author finds
that the 123 agreement's operationalization holds the secret to determine the potential
direction of Indo-US relations. In his book on Diplomacy in 1994, Kissinger
contemplated the' imminent loss of American influence in the 21st century.' A new
balance of power, he said, would need the United States to share its dominance with

Europe, the United States, Japan, Russia, and possibly India. The Bush administration
turne
d from strident unilateralism to acute multilateralism, the Bush administration's post-
9/11 defence and foreign policy represent this pattern.

Francis Cherunilam25 (2008), considering the emerging trends

towards global liberalization as well as reform process in India have

drastically altered the business environment of domestic firm. By referring to cases

andtext in the Indian context, the book has addressed different aspects, such as,
globalisation, foreign exchange, and foreign trade policy; dimensions and
developments in international market.

B.N. Tripathy26 (2009), has state that exports are engines of economic growth.
The thesis traced Adam Smith's ideas on export, historical perspective and an attempt
to analyse the position of the Indian economy. India's economy has always been
driven by exports and an export-led development strategy. Mr. B.N. Tripathy has
found out that small countries with scarce natural resources are more likely to find that
export specialisation will help them expand faster.

24
H.M. Sanjeev Kumar – 2008 (Dynamics of Post – Cold War US Foreign Policy and the shaping of INDO US)
25
Francis Cherunilam – 2008 (International Economic) Article
26
B.N.Tripathy – 2009 (Exports of Trade and Economic Growth)
24
 The industrial sector's performance in recent years, notably during the

postreform period, has been contentious, attracting the attention of numerous scholars.
According to Kaliappa27 (2004), the manufacturing sector's production growth in the
postreform period is "input driven" rather than "efficiency driven." Manufacturing was
a major driver of growth in India during the 1970s and 1980s. The speed of the engine
appears to have slowed after the 1991 economic reform. According to the findings,
boosting company efficiency can result in a 15% increase in production without
needing to increase inputs on average.

The impact of India's trade liberalisation on the productivity of registered and

unregistered manufacturing businesses is estimated by Nataraj28 (2011). He calculates
total factor productivity from 1989-90 to 1998-99 using the Index number technique
of Aw, In addition, he utilised quantile regression techniques to see if there were any
variations in the productivity and company size distributions as a result of the
businesses' arrival and leave. He discovers that the unregistered sector drives the
negative link between final products tariffs and productivity, whereas the relationship
between final goods tariffs and registered sector productivity is statistically negligible.

In her work, Datta29 (2014) calculates TFP growth for the Indian registered
manufacturing sector from 1980-81 to 2003-04. The study covers the whole era as
well as two sub-periods: 1980-81 to 1990-91 and 1990-91 to 2003-04. The registered
manufacturing sector in India appears to have performed significantly better in terms
of TFPG in the decade previous to liberalisation in 1991 than in the post-liberalization
period, according to the study. The largest rate of increase in labour productivity, the
lowest rate of decrease in capital productivity, and therefore a relatively high rate of
TFPG occurred during the pre-liberalization period.
27
Kaliappa – 2004 (The Manfacturing Sector’s Production)
28
Nataraj – 2011 (The Impact of India’s Trade Liberalisation on Production)
29
Datta – 2014 (The Productivity Development of India’s Manufacturing Industry)
25
 Mehta (2014) estimates the stochastic frontier model with the time-varying
inefficiency model for the organised manufacturing industries in India from 1980-81
to 2005-06. The research also looked at the impact of reforms on several technology
intensive industrial sub-groups, such as High-technology (HT), Medium High
Technology (MHT), Medium-Low Technology (MLT), and Low-

technology (LT), according to the OECD classification. The findings from the panel

26
 Chapter 3

Data Analysis

India US trade relation is also considered as inter-dependence in terms of

financial markets. United States’ investors are investing more and more in India. Indian
multinational corporations are also establishing corporations in the United States. India-
US economic cooperation agreed that they will concentrate on pr omoting teaching,
research, service and commercial linkages. Areas like infrastructure, IT, Telecom sector,
energy and other knowledge industries such as pharmaceuticals and biotechnology are
the favourite areas for economic cooperation between India and the United States. India-
US trade relations are the significant phase of the global and strategic partnership
existing between these two countries. They will have long lasting and positive effect on
the international system, promoting stability, democracy and success across the world.
Indo-US trade relations had further boosted with the conclusion of an open sky, which is
supposed to increase the air connectivity between these two countries, in that way

improving the commercial and trade relations.

After adopting LPG programme in 1991, manufacturing sector had become an

important sector for the economic development. New Industrial policy of 1991 had given first
priority to attract foreign investment in India and increase exports to abroad. Now Government
had started opening up of domestic sectors for both private and foreign participation, which
were earlier reserved for only public sector. India’s export performance since 1991 has
fluctuated. The liberalization of the Indian economy following the balance of payment crisis
resulted in major policy and exchange rate changes, which had a favourable impact on India’s
trade

During the initial Phase of post-liberalization era i.e. from 1991 to 2000, there was a
continuous increase in Export with USA. The total amount of Export value in 1992, was
US$ 3928927013, in 1992 and AGR was 34.24. But in 2001, it declined to US$
8404055.704 from US$ 9304913.801 in 2000. AGR was 10.29% in 2000 and it became
negative (i.e. -9.68%) in 2001, In 2001-02 India faced another setback in its exports, at large,
due to the semi-recession faced by the US; one of India’s biggest trading partners.

27
 Descriptive Statistics of Export & Import

Table 1: Descriptive statistics analysis of India Exports and import. Year (199192
to 2018-19)

India export to USA India Imports from USA

Mean 19889008.56 Mean 12003094.76

Standard Error 2914501.36 Standard Error 1896531.18

Median 14823860.97 Median 7125165.164

Standard Deviation 15422091.59 Standard Deviation 10035499.71

Sample Variance 2.37841E+14 Sample Variance 1.00711E+14

Kurtosis -0.933110975 Kurtosis -0.11318177

Skewness 0.730462968 Skewness 0.811531432

Range 48701823.38 Range 37013304.62

Minimum 2926764.032 Minimum 1891170.176

Maximum 51628587.41 Maximum 38904474.79

Sum 556892239.7 Sum 336086653.3

Source:https://commerce.gov.in

The table 2 show the descriptive analysis of export for the period from 1991 to
2018. Facts show that the mean of export was found $19889008.56 and mean of
import

28
was $12003094.76, variation in terms of Standard Deviation was observed in case
of export, it was $15422091.59 and import was $10035499.71 Kurtosis listed for
export was -0.933110975 and for import -0.11318177. Thus it is obvious that the
nature of data is reliable for statistical analysis.

The Commodity Composition of India’s trade with USA

Descriptive of the data is necessary as the nature of the techniques to be
applied for inferential analysis of the data depends on the characteristics of the data.

Table 3 & 4 Present descriptive statistical analysis of export and import of

manufacturing goods for the period from 1991-92 to 2018-19.

Descriptive Statistics of Import of Manufacturing Goods

Table Number 3 show that the descriptive analysis of components of

manufacturing goods of import for the period 1991 to 2018, facts show that the
mean of component of manufacturing goods of import found maximum for
NUCLEAR REACTORS BOILERS MACHINERY ETC.($ 1.83E+09) while
minimum was noted for TOBACCO AND MANUFACTURED TOBACCO
SUBSTITUTES ($577042.1).
Similarly, maximum variation in terms of Standard Deviation was observed in case
of
FERTILIZERS ($6.50E+08),while minimum variation was noted for SPECIAL
WOVEN OR TUFTED FABRIC LACE TAPESTRY ETC ($656132),Maximum
Kurtosis was listed for Fertilizers($15.53761) while minimum was observed for
RUBBER AND ARTICLES THEREOF ($1.442037).

Descriptive Statistics of Export of Manufacturing Goods

Table Number 4 show that the descriptive analysis of components of

manufacturing goods of export for the period 1991 to 2018, facts show that the
mean of component of manufacturing goods of export found maximum for Pearls,
precious stones, metals, coins, etc. ($4.74E+09) while minimum was noted for
fertilizer ($2531783).Similarly, maximum variation in terms of Standard Deviation
was observed in case of Pearls, precious stones, metals, coins, etc,

29
($2.98E+09),while minimum variation was noted for Nickel and articles thereof
($3564495),Maximum Kurtosis was listed for Fertilizers(21.95876) while minimum
was observed for Rubber and articles thereof ($0.062765).

The table 5 represents the average annual growth of export for the period
1991 to 2018.Tobacco and manufactured tobacco substitutes 14.6%, Organic
chemicals 23.4%, Pharmaceutical products 18.3%, Fertilizers, Plastics and articles
thereof 15.5%, Rubber and articles thereof 8.1%, Wood and articles of wood, wood
charcoal 18.2%, Paper & paperboard, articles of pulp, paper and board 16.2%,
Cotton 2.6%, Special woven or tufted fabric, lace, tapestry etc 5.6%, Other made
textile articles, sets, worn clothing etc 13.7%, Pearls, precious stones, metals, coins,
etc 8.1%, Iron and Stee l7.8%, Copper and articles thereof 12.4%, Nickel and
articles thereof 15.5%, Tools, implements, cutlery, etc of base metal ,5.1%,
Inorganic chemicals precious metal compound, isotope 6.9% Electrical, electronic
equipment stood at 13.7%.

The fluctuation in all components of manufacturing export goods has

happened due to new economic reforms of 1991.We can conclude that the 11
component of export of manufacturing goods have been showing more than or equal
to 10% of annual growth rate which are the symbol of strengthen of manufacturing
sector and remaining 7 components of manufacturing export goods are found less
than 10% that is not good sign of manufacturing reliance.

30
Table 2 : Annual Growth Rate of Export of Manufacturing Goods. (Year 1991-
2018)
S.N.
Variable A Β
HS Average Annual
CODE Growth (in %)
1. 24 14.7439121 0.106449423 10.6%
Tobacco and manufactured
tobacco substitutes

2. 29 Organic chemicals 17.64351 0.146894 14.6%

3. 30 Pharmaceutical products 16.22684 0.234646 23.4%

4. 31 Fertilizers 10.21782 0.183706 18.3%

5. 39 Plastics and articles thereof 16.5046041 0.155237011 15.5%

6. 40 Rubber and articles thereof 17.47423707 0.081962557 8.1%

7. 44 13.95118852 0.182572984 18.2%
Wood and articles of wood,
wood charcoal
8. 48 14.51046672 0.16240917 16.2%
Paper & paperboard, articles
of pulp, paper and board

9. 52 Cotton 18.87937062 -0.026741756 -2.6%

10. 58 16.04640109 0.05663498 5.6%
Special woven or tufted
fabric, lace, tapestry etc.
11. 63 18.17522529 0.137774813 13.7%
Other made textile articles,
sets, worn clothing etc.
12. 71 20.83250403 0.081902431 8.1%
Pearls, precious stones,
metals, coins, etc.

13. 72 Iron and steel 18.09192652 0.078644435 7.8%

14. 74 Copper and articles thereof 15.59947917 0.124567524 12.4%

15. 75 Nickel and articles thereof 11.74078551 0.155744866 15.5%

31
16. 82 15.40846286 0.051781004 5.1%
Tools, implements, cutlery,
etc. of base metal
Source :https://www.ibef.org › industry

Table 6 represents the average annual growth of import for the period 1991 to

2018.Tobacco and manufactured tobacco substitutes, Organic chemicals,

Pharmaceutical products, Fertilizers, Plastics and articles thereof, Rubber and

articles thereof, Wood and articles of wood, wood charcoal, Paper & paperboard,
articles of pulp, paper and board, Cotton, Special woven or tufted fabric, lace,
tapestry etc, Other made textile articles, sets, worn clothing etc, Pearls, precious
stones, metals, coins, etc,
Iron and steel, Copper and articles thereof, Nickel and articles thereof, Tools,
implements, cutlery, etc of base metal, Nuclear reactors, boilers machinery etc,
Vehicles other than railway, tramway, Electrical, electronic equipment stood at
2.4%, 8.4%, 16.6%, 2.7%, 11.8%, 11.8%, 16.3%, 13.1 %, 18.8%, 4.1 %, 9.8%, 17.9
%, 8.1 %, 4.5%, 12.8%, 9.8%, 10.0%, 12.9% and 9.2% respectively.

The fluctuation in all components of manufacturing import goods has

happened due to new economic reforms of 1991.We can conclude that the 10
component of import of manufacturing goods have shown more than or equal to
10% of annual growth rate, that are the symbols of dependency on partner country
and remaining 9 components of manufacturing import goods are found less than
10% that is good sign of manufacturing self-dependency.

32
Table 3 : Annual Growth Rate of Import of Manufacturing Goods. (Year
1991-2018)

S.N. Variable
HS Average Annual
CODE A B Growth (in %)
1. 24 12.61052593 0.024145404 2.4%
Tobacco and manufactured
tobacco substitutes

2. 29 Organic chemicals 18.6203306 0.08460478 8.4%

3. 30 Pharmaceutical products 15.2506494 0.166356332 16.6%

4. 31 Fertilizers 18.9424337 0.02711092 2.7%

5. 39 Plastics and articles thereof 17.65097578 0.118919194 11.8%

6. 40 Rubber and articles thereof 16.21157821 0.118885357 11.8%

7. 44 13.2642254 0.163744952 16.3%
Wood and articles of wood,
wood charcoal
8. 48 16.00236808 0.131667736 13.1%
Paper & paperboard, articles
of pulp, paper and board

9. 52 Cotton 14.6589597 0.18884842 18.8%

10. 58 13.52312855 0.041599258 4.1%
Special woven or tufted
fabric, lace, tapestry etc
11. 63 15.35007548 0.098425127 9.8%
Other made textile articles,
sets, worn clothing etc
12. 71 17.50810481 0.179001001 17.9%
Pearls, precious stones,
metals, coins, etc

13. 72 Iron and steel 18.03715076 0.081324753 8.1%

33
 14. 74 Copper and articles thereof 17.12114 0.045476 4.5%

15. 75 Nickel and articles thereof 13.96399728 0.128609982 12.8%

16. 82 15.58936996 0.098910183 9.8%
Tools, implements, cutlery,
etc of base metal
17. 84 19.49764496 0.100097693 10.0%
Nuclear reactors, boilers,
machinery, etc
Source: https://tradingeconomics.Com

Table 7 show s that Acceleration and Deacceleration in the average annual grow
th rate of components of export manufacturing goods are estimated in the the
slope and Intercept dummy variable semi log model for the period 19 9 1 to 2 0 18
. Empirical result indicate that average annual grow th rates in components of
export manufacturing goods have accelerated or deaccelerated although
marginally (less than 1%).

Average annual growth rate represents through the acceleration and the
Deacceleration of components of manufacturing export goods is not volatile. The
fluctuation of export components is marginally 1% or less than 1%, which shows
that it is significant for exporter country in the import market.
Table 8 shows that Acceleration and Deacceleration in the average annual
growth rate of components of import manufacturing goods are estimated in the slope
and intercept dummy variable semi log model for the period 1991 to 2018.
Empirical result indicate that average annual growth rate in components of import
manufacturing goods have accelerated or deaccelerated marginally (less than 1%).

Average annual growth rate represented through the acceleration and the
Deacceleration of components of manufacturing import goods is not volatile. The
fluctuation of import components is marginal by 1% or less than 1%. Which shows
that it is significant for importer country in the export market.

34
 Table 4 : Composition of Export Manufacturing Goods
Year 1991 2000 2010 2018

Tobacco and 2324694 10924123 22012558 29353565

manufactured tobacco
substitutes

Inorganic chemicals, 27028648 30634401 47781523 112326852

precious metal
compound, isotope

Organic chemicals 45569232 193920910 1304830374 1800549831

Pharmaceutical products 25311998 45919343 1674884701 5033400343

Fertilizers 7399 134994 131612 4355123

Plastics and articles 5461197 64110729 354569209 800185134

thereof

Rubber and articles 31752288 64800721 167890254 482839821

thereof

Wood and articles of 1478266 5348197 39158985 154513459

wood, wood charcoal

35
 Paper & paperboard, 714779 16370676 56322462 132171082
articles of pulp, paper
and board

Cotton 117962800 124974118 65126784 99063473

Special woven or tufted 6193165 37056021 28559734 30406593

fabric, lace, tapestry etc.

Other made textile 57998888 389755338 1363392799 2467048484

articles, sets, worn
clothing etc.

Source: https://w w w .trade.gov

Commodity composition of export manufacturing goods represented through

the table 9. The table shows the changes in all selected commodities in 1991 to 2000,
2000 to 2010 and 2010 to 2018. This table is also presented with the help of bar
diagram and line graph in Graph 4, Graph 5 and Graph 6.

36
Graph 4: Composition of Export Manufacturing Goods

37
Graph 6: Composition of Export Manufacturing Goods

38
 Table 5 : Composition of Import Manufacturing Goods
Year 1991 2000 2010 2018

Tobacco and manufactured 56828 249116 993389 735490

tobacco substitutes
Organic chemicals 100417352 193808539 710958200 1744009482

Pharmaceutical products 15020972 8155192 162762749 313323536

Fertilizers 265698976 69060106 828210729 59695045

Plastics and articles thereof 96711416 92755893 821879058 1076613682

Rubber and articles thereof 13674506 25174599 181314438 229619138

Wood and articles of 2147248 2635983 15487704 54506889

wood, wood charcoal
Paper & paperboard, 4900634 21933382 216402435 246762878
articles of pulp, paper and
board
Cotton 99561 26344516 66680458 352183990

Special woven or tufted 308218 1217585 1788678 1757661

fabric, lace, tapestry etc.
Other made textile articles, 4071625 10519966 44259750 71512407
sets, worn clothing etc.
Pearls, precious stones, 37033992 190015976 2238016333 7024827918
metals, coins, etc.
Iron and steel 142572912 63060157 603359257 505477384

Copper and articles thereof 28645824 26992566 48827553 182178505

Nickel and articles thereof 1165712 2718551 24978854 48285250

Tools, implements, cutlery, 4545116 13661927 62937913 57433850

etc. of base metal
Nuclear reactors, boilers, 284695936 615932254 2621527625 3931138170
machinery, etc.
Electrical, electronic 135091792 448131375 1246994821 1794727338
equipment

39
Graph 8: Composition of Import Manufacturing Goods

Graph 9: Composition of Import Manufacturing Goods

40
Commodity Concentration

In the table 10A and 10B export of manufacturing commodity concentration

index has been shown. As per table 10A & 10B the export commodity concentration
index of Tobacco and manufactured tobacco substitutes accounted to -0.138467326 in
1991 where Eyes in 2018, its index became -0.189225459. In 2018 over 1991 the
export commodity concentration index became more negative showing decline in
concentration index of the concerned product. It means there is no radical change in
the direction of Tobacco and manufactured tobacco substitutes substitute during 1991
to 2018.

The declining trend of export commodity concentration of Inorganic

Chemicals is observed between 1991 to 2018. In 1991 Inorganic chemicals, precious
metal compound, isotope constitutes export commodity concentration index as
1.667266008, which declining and fluctuating become 0.147616959 in 2018. It shows
negative directional change. A positive directional change is observed in case of
Organic chemical its export commodity concentration index was 3.02248 8357 in
1991, which increased to 7.001209609 in 2018. In between years of 1991 to 2018. It
showed increasing and fluctuating trends. It is clear that the direction of this export
commodity has shifted to USA.

Rapid change is observed regarding directional change of India's

Pharmaceutical products. India's export commodity concentration index is regard to
Pharmaceutical products accounted to 1.541787628 in 1991, which became
20.1254781 in 2018. Rapid increase took place from 2012 onwards. Export of this
particular product is directed more to USA. In case of Fertilizer export commodity
concentration index shows that export to USA from India has declined and has always
possessed negative value from 1991 to 2018. It indicates that India's export of
fertilizers has shifted from USA to other countries.

In case of plastic and articles thereof, it is observed that it's export

commodities concentration index has been positive showing increasing trends during
the entire study period. In 1991 its export commodity concentration index was
0.090795083 which increased to 22.940080114 in 2018, showing a positive trend in
India's export to USA.

41
 In case of Rubber and article thereof, the export concentration index was
2.012540057 in 1991, which declined to 1.651769546 in 2018. Thus it is clear that
though concentration index has been positive, but it declining trend shows deduction
in its export to USA.

In regard to Wood and articles of wood & wood charcoal, export commodity
concentration index remained negative till 2011, but in subsequent year it became
positive slowly. Its shows that as per its commodity concentration index its export to
USA has shifted. Export commodity concentration index of Paper & paperboard,
articles of pulp, paper and board, accounted for -0.256143921 in 1991, which
increased to 0.228177566 in 2018. It shows that its export has shifted to USA market
gradually during entire period of study.

Focusing on export commodity concentration index of cotton it is revealed that

exports of Indian Cotton to USA has declined considerably during 1991 to 2018. In
1991 commodity concentration index was 8.314089813 which subsequently declined
to 0.093772296 in 2018, it can be concluded that USA as a market for cotton has
shrunked. Similar Trends is observed in case of Special woven or tufted fabric lace
tapestry etc, during 1991 to 2018 export commodity concentration index of this group
of products accounted for 0.14429822 in 1991, which fluctuating and declining
became -0.184950535 in 2018. It shows a shift of export of this product from USA to
other markets.

Though, the USA as a export market for the group of Other made textile
articles sets, worn clothing, etc, is Still very bright but it so increasing fluctuating
trends. Its export commodity concentration index to USA was 3.931032964 in 1991,
which reached its zenith in 2002(13.17820815) but declined to 9.706960169 in 2018.

With respect to Pearls, precious stones, metals, coins, etc, India's export
commodity concentration index reveals that USA remained a major market till 2003
but in subsequent year its share gradually declined. In 1991 concentration index was
64.72075363which reached its zenith in 2005(81.91075608), but in subsequent years
it decline and reached to 42.29718826 in 2018. It is a matter of great concern that
USA as a market for India's Pearls, precious stones, metals, coins, etc, is shrinking.

42
 Similar trends is shown by export commodity concentration of Iron and Steel
in 1991, index was 1.667879421, which slowly declined to 0.881790827 in 2018,
having the highest index of 10.55173979 in 2004 it not a good sign for Indian export
of this product. Similar trends is shown by export commodity concentration of Copper
and articles thereof, in 1991, index was 0.058143002, which slowly increased to
0.294413166 in 2018, it not a good sign for Indian export of this product.

The export commodity concentration index of Nickel and articles thereof,

accounted to -0.307804846 in 1991 where Eyes in 2018, its index became
0.276661265. In 2018 over 1991 the export commodity concentration index became
more negative showing decline in concentration index of the concerned product. It
means there is no radical change in the direction of Nickel and articles thereof, during
1991 to 2018.

In case of Tools implements cutlery etc of base metal, during 1991 to 2018
export commodity concentration index of this group of products accounted for
0.434361854 in 1991, which fluctuating and declining became -0.319311253 in 2018.
It shows a shift of export of this product from USA to other markets.

Rapid change is observed regarding directional change of India's Electrical,

electronic equipment. India's export commodity concentration index is regard to
Electrical, electronic equipment, accounted to 1.184961075 in 1991, which became
6.477139515 in 2018. Rapid increase took place from 2012 onwards. Export of this
particular product is directed more to USA.

Results of the Herfindahl-Hirschman Index confirm the tendency for higher

manufacturing goods export concentration to be inversely related to total export.
Manufacturing goods export concentration also seems to be related to economic
development, with the indices of both countries.

The commodity concentration index for total export earnings is determined not
only by the proportion of the major export item in total exports, but also by the share
of the major export item in total exports. If a country's primary export is generally
steady, it might have a greater commodity concentration (as assessed by the
HerfindahlHirschman Index).

43
 The demand-and-supply circumstances impact the major commodity varied per
commodity. The performance of trade agreements that influence the major export's
stability, the degree to which the major and minor export items fluctuate around their
trends, and the relationship between these variations because of these distinctions,
greater concentration does not always imply greater instability. If these differences
aren't taken into account in a cross-country regression model, the results may indicate
no link between instability and concentration.

Prospects of Indo-US Trade Relations

Prospects of Indo-US trade relations are shown through Trade intensity index,
Reveal comparative advantage and Gravity Model.

In this section, actual performance of India and USA trade over the period
1991- 2018 has been analysed. The export and import and trade intensity indexes
reflect the ratio of the share of India’s trade with USA relative to the share of world
trade destined for USA. An index of greater than unity is explained as an indication of
larger than expected trade flow between the two countries. Whereas, an index of less
than unity reflects an indication of smaller than expected trade flow between the two
countries.
India’s export and import intensities with USA have been computed during the period
1991-92 to 2018-19 and presented in table 13.

44
 Table 10: India’s Trade (Export - Import) Intensity Index with USA: (Year
1991-2018)
Year Export Intensity Import Intensity Trade Intensity Index
Index (Xii) Index (Mii) (TII)

1991 0.626642775 0.436859203 0.971849243

1992 0.838348283 0.518104417 1.193093769

1993 0.847911436 0.695995663 1.040910843

1994 1.047008235 0.735145128 1.177004017

1995 1.059397455 0.835041712 1.178716976

1996 1.208441138 0.736675796 1.312761583

1997 1.15451796 0.685961151 1.231596859

1998 1.21747411 0.660935298 1.306079699

1999 1.201119576 0.561992458 1.281046224

2000 1.151995667 0.486035925 1.141189669

2001 1.035883322 0.594252305 1.027817907

2002 1.117454975 0.690284535 1.131453543

2003 1.091611855 0.809796423 1.109995398

2004 1.041306555 0.747838641 1.064677813

2005 0.982177506 0.745809318 1.033618004

2006 0.96135673 0.811123918 1.000809308

2007 0.93804205 0.849027735 0.987194266

2008 0.857158185 1.042895504 0.918103813

2009 0.818000493 0.775693811 0.876753914

2010 0.805288218 0.70947149 0.872654332

45
 2011 0.849497775 0.655179765 0.935835644

2012 0.992186401 0.633978357 1.063851163

2013 0.992286411 0.635849157 1.06840761

2014 1.008621549 0.563602821 1.085783822

2015 1.040444431 0.621416097 1.102573539

2016 1.106884658 0.686015564 1.169044502

2017 1.116375247 0.672563031 1.165015476

2018 1.119948997 0.775483414 1.197223564

Source: Author’s calculation, Figure in US Dollars

The table 13 shows the index value of India’s export intensity with USA
constitutes 0.626642775 in 1991, 0.838348283 in 1992 and 0.847911436 in 1993. But
the value of export intensity increased to greater than one (1.047008235 in 1994). The
value of the export intensity index recorded greater than one for the period 1994 to
2004. The value of the export intensity index further continuously declined for the
period 2005 to 2013.The value of the export intensity index further improved greater
than one from 2014 to 2018. Thus the index value of India’s export intensity with
USA maintained more than unity value only for Sixteen years and did not maintain in
twelve years throughout the period. This implies that India’s exports to the USA are
one of the larger than would be expected, given USA’s share of world export trade.

Similarly index value of India’s import intensity maintained less than unity
value matchless throughout the periods except only 2008. This implies that India’s
imports from the USA are less than would be expected given India’s share in world
import trade. The trade intensity analysis for India with the USA is larger with a trade
intensity index value greater than 1 for the whole period except for 6 years 1991,
2007, 2008, 2009, 2010 and 2011.

Revealed Comparative Advantage

The idea of revealed comparative advantage (RCA) is based on Ricardian trade

theory, which states that trade patterns are driven by relative productivity differences

46
between nations. Although such variations in productivity are difficult to see, an RCA
metric may be easily derived using trade data to "expose" them. While the metric can
be used to get a general idea and first approximation of a country's competitive export
strengths, it should be noted that the RCA metric does not take into account applied
national measures that affect competitiveness, such as tariffs, non-tariff measures,
subsidies, and others.

The Ricardian theory and the Heckscher-Ohlin (H-O) theory are the two most
popular theories of trade based on comparative advantage. The Ricardian theory posits
that comparative advantage emerges from technological disparities across nations,
whereas the H-O hypothesis implies that technologies are uniform between countries.
The H-O hypothesis, on the other hand, relates comparative advantage to cost
disparities caused by changes in factor prices between nations. In a nutshell, orthodox
(classical) trade theories anticipate outcomes based on the concept of comparative
advantage, which is derived from differences in pre-trade relative pricing between
nations.

Table 11: India’s Trade (Export - Import) Revealed Comparative Advantage

(RCA) with USA: (Year 1991-2018)
Year Revealed Comparative Advantage(RCA)

1991 0.110027066

1992 0.149123618

1993 0.161129969

1994 0.197831997

1995 0.188222207

1996 0.213695107

1997 0.213366161

1998 0.233805425

1999 0.24471695

47
 2000 0.250782513

2001 0.217419922

2002 0.232692455

2003 0.222484466

2004 0.205546651

2005 0.198875352

2006 0.198026221

2007 0.172259779

2008 0.154995063

2009 0.141727284

2010 0.142460353

2011 0.146673166

2012 0.17484773

2013 0.157730782

2014 0.160474469

2015 0.180620453

2016 0.191179506

2017 0.180795804

2018 0.186631877

Source: Author’s calculation, Figure in US Dollars

The RCA measures for India’s trade in export and import manufacturing items
are presented in Table 14. The RCA index takes values for export and import of
manufacturing items, namely, Tobacco and manufactured tobacco substitutes, Organic
chemicals, Pharmaceutical products, Fertilizers, Plastics and articles thereof, Rubber
and articles thereof, Wood and articles of wood, wood charcoal, Paper & paperboard,

48
articles of pulp, paper and board, Cotton, Special woven or tufted fabric, lace, tapestry
etc, Other made textile articles, sets, worn clothing etc, Pearls, precious stones, metals,
coins, etc, Iron and steel, Copper and articles thereof, Nickel and articles thereof,
Tools, implements, cutlery, etc of base metal, Nuclear reactors, boilers machinery etc,
Vehicles other than railway, tramway, Electrical, electronic equipment for the entire
sample period, For these 18 items, the RCA index takes values between 0 and 1.India
was in a comparatively advantageous position until 2007 and then India lost her
advantage to the rest of the world. This also happens to be the period of global
financial and economic crisis. Nevertheless, further investigation is needed to establish
whether there is a connection between India’s loss of advantageous position in
manufacturing products and global financial and economic crisis.

The RCA of selected manufacturing trade commodities can be used to forecast

India-US trade prospects. If the RCA index is larger than one, commerce between
India and the United States will have more opportunities, and vice versa. Balassa
(1965) devised a method for calculating comparative advantage. He believed that a
country's comparative advantage is represented or disclosed in the exports it makes to
the global market. The comparative advantage trade pattern may be approximated by
ranking sectors based on their relative export success using post-trade data. It is a
widely used approach for evaluating trade data in practise.

The percentage of a given product in a country's overall exports relative to the

product's share in world exports is generally used to assess a country's revealed
comparative advantage in exports transactions of a particular product. If the ratio is
less than one, the country is at a competitive disadvantage in the product's export
market. If the RCA index is greater than one, the country has a clear comparative
advantage in product exports. Imports are in the same condition.

49
 Chapter 4

Conclusion and Suggestions

The international economic picture has been subjected to periodic significant

upheavals in the twenty-first century, notably since the new economic reforms of
1991. In recent years, there have been significant developments in economic
connections and bilateral trade with other nations across the world. In the last three
decades, India has become one of the world's fastest-growing economies among
emerging economies. India's economy is currently the world's second fastest
expanding emerging economy, after China.

Increased bilateral trade, investments, and economic cooperation with the rest
of the world play a vital role in the growth and development of rising economies like
ours. Since 1991, an examination of Indo-US trade relations has been conducted: With
a focus on the manufacturing sector, it was discovered that India's commerce with the
United States and other countries has grown more liberalised and diverse. This chapter
deals with the prospects and offers some general conclusions regarding the success of
Indo-US trade ties in particular, as well as policy implications in this area. Because
trade is the foundation of a country's external trade ties, the importance of trade in the
growth and development of emerging countries cannot be overstated. India's trade
connections with the United States, on the other hand, play an important role in the
country's growth. This research focuses on India's commercial connections with the
United States.

An analysis of India’s foreign trade with USA since 1991 to 2018 shows that
India’s Export value was US$ 3928927013 in 1992 and AGR was 34.24. But in 2001,
it declined to US$ 8404055704 from US$ 9304913801 in 2000. AGR was 10.29% in
2000 and it became negative (i.e. -9.68%) in 2001, In 2001-02 India faced another
setback in its exports, at large, due to the semi-recession faced by the US; one of

50
India’s biggest trading partners. again in next year, it increased in 2002. AGR was of
23.62% in 2002. Again this increasing trend was till 2008, but in 2009, again declined
due to world economic crisis 2008, export reduced in 2009, AGR -10.64% negative in
comparison to AGR 6.32% in 2008. After the negative annual growth of 2009 the
performance of export increased in 2010 with AGR 23.31% and it continued till 2014.
Once again it was negative in 2015, AGR -5.55%. In next year 2016 AGR was 4.16 it
means positive. In the next year 2017 and 2018 AGR was recorded as 9.5% & 12.1 %
respectively. Showing a CAGR of 0.107944351 per cent over the period. India exports
major commodity of manufacturing goods, that are Tobacco and manufactured
tobacco substitutes, Organic chemicals, Pharmaceutical products, Fertilizers, Plastics
and articles thereof, Rubber and articles thereof, Wood and articles of wood, wood
charcoal, Paper & paperboard, articles of pulp, paper and board, Cotton, Special
woven or tufted fabric, lace, tapestry etc, Other made textile articles, sets, worn
clothing etc, Pearls, precious stones, metals, coins, etc, Iron and steel, Copper and
articles thereof, Nickel and articles thereof, Tools, implements, cutlery, etc of base
metal, Nuclear reactors, boilers machinery etc, Vehicles other than railway, tramway,
Electrical, electronic equipment.

Similarly India’s import performance of manufacturing goods that is Tobacco

and manufactured tobacco substitutes 2.4%, Organic chemicals8.4%, Pharmaceutical
products16.6%, Fertilizers 2.7%,, Plastics and articles thereof 11.8%, Rubber and
articles thereof 11.8%, Wood and articles of wood, wood charcoal 16.3%, Paper &
paperboard, articles of pulp, paper and board13.1 %, Cotton 18.8%, Special woven or
tufted fabric, lace, tapestry etc 4.1 %, Other made textile articles, sets, worn clothing
etc 9.8%, Pearls, precious stones, metals, coins, etc 17.9 %, Iron and steel 8.1 %,
Copper and articles thereof 4.5%, Nickel and articles thereof 12.8%, Tools,
implements, cutlery, etc of base metal 9.8%, Nuclear reactors, boilers machinery etc
10.0%, Vehicles other than railway, tramway 12.9%, and Electrical, electronic
equipment stood at 9.2% respectively. The fluctuation in all components of
manufacturing export goods due to new economic reforms in 1991.we can conclude
that the 11 component of export of manufacturing goods have been showing more
than or equal 10% of annual growth rate of which are the symbols of strengthen of
manufacturing sector and remaining 7 components of manufacturing export goods are
found less than 10% that is not good sign of manufacturing reliance.

51
 The export and import and trade intensity indexes reflect the ratio of the share
of India’s trade with USA relative to the share of world trade destined for USA. An
index of greater than unity is explained as an indication of larger than expected trade
flow between the two countries. Whereas, an index of less than unity reflects an
indication of smaller than expected trade flow between the two countries. India’s
export and import intensities with USA have been computed during the period 1991-
92 to 2018-19.

The index value of India’s export intensity with USA constitutes 0.626642775
in 1991, 0.838348283 in 1992 and 0.847911436 in 1993. But the value of export
intensity increased to greater than one (1.047008235 in 1994). The value of the export
intensity index recorded greater than one for the period 1994 to 2004. The value of the
export intensity index further continuously declined for the period 2005 to 2013.The
value of the export intensity index further improved greater than one from 2014 to
2018.
Thus the index value of India’s export intensity with USA maintained more than unity
value only for Sixteen years and the remains not maintained in twelve years
throughout the period. This implies that India’s exports to the USA are one of the
larger than would be expected, given USA’s share of world export trade.

Similarly index value of India’s import intensity maintained less than unity
value matchless throughout the periods, except only 2008. This implies that India’s
imports from the USA are less than would be expected given India’s share in world
import trade. The trade intensity analysis for India with the USA is larger with a trade
intensity index value greater than 1 for the whole period except for 6 years 1991,
2007, 2008, 2009, 2010 and 2011. As far as the trade intensity of India with the USA
is concerned the result suggested that entire trade relations are strengthening because
of more export intensity during more than half of the period.

The RCA measures for India’s trade in export and imports manufacturing
items are presented in Table 10. The RCA index takes values for export and import of
manufacturing items, namely, Tobacco and manufactured tobacco substitutes, Organic
chemicals, Pharmaceutical products, Fertilizers, Plastics and articles thereof, Rubber
and articles thereof, Wood and articles of wood, wood charcoal, Paper & paperboard,
articles of pulp, paper and board, Cotton, Special woven or tufted fabric, lace, tapestry
etc, Other made textile articles, sets, worn clothing etc, Pearls, precious stones, metals,

52
coins, etc, Iron and steel, Copper and articles thereof, Nickel and articles thereof,
Tools, implements, cutlery, etc of base metal, Nuclear reactors, boilers machinery etc,
Vehicles other than railway, tramway, Electrical, electronic equipment for the entire
trade period, For these 18 items, the RCA index takes values between 0 and 1.India
was in a comparatively advantageous position till 2007 and then India lost her
advantage to the rest of the world. This also happens to be the period of global
financial and economic crisis. Nevertheless, further investigation is needed to
establish whether there is a connection between India’s loss of advantageous position
in manufacturing products and global financial and economic crisis.

The gravity model has been used by scholars/ academics to investigate the
influence of GDP, distance, population, and other factors on trade flow across nations
through time. The gravity model, which was tested for the United States from 1991 to
2018. With trading partner India and the Gross Domestic Product (GDP) of the USA
has affected trade flow positively and significantly with some exceptions. It means
enhancement in GDP has raised the volume of trade over the period 1991-2018.
However, in the case of India’s trade with the USA (in terms of GDP), enhancement in
the GDP of India has resulted in an increased in the trade flow of India with the USA.

Results of the Herfindahl-Hirschman Index confirm the tendency for higher

manufacturing goods export concentration to be inversely related to total export.
Manufacturing goods export concentration also seems to be related to economic
development, with the indices of both countries.

The proportions of each commodity in total exports, and the relationship

between the export commodities' variations from their trends. If the major and minor
commodity's deviations from their respective trends are in opposite directions. The
total export and the commodity concentration index, exhibit comparatively lower
swings. The overall export profits would be subject to substantial swings.

As a result, the commodity concentration index for total export earnings is

determined not only by the proportion of the major export item in total exports, but
also by the share of the major export item in total exports. But also, among other
factors, on the insecurity of the primary exports trend. If a country's primary export is
generally steady, it might have a greater commodity concentration (as assessed by the
HerfindahlHirschman Index) and a lower instability index than another.

53
Suggestions
1. To increase the pattern of foreign trade between India and USA, the
competitiveness of the products is to be enhanced by reduction in cost and
improvement in quality of products. This is possible by advancement of
Technology and improvement in the skill-ness of workforce.

2. Trade between the two countries can be enhanced by removal of tariffs and
nontariff barriers. No doubt, Indian’s exports of agricultural goods to USA
can increase, if USA removes subsidies and other restrictions imposed on
agricultural products.

3. A Study Team of Experts to explore the potentiality of trade between India

and USA needs to be constituted and study report submitted by the team of
experts should be implemented properly.

4. To enhance trade between two the countries demand should be generated

through demonstration effect. It is possible by organising trade fairies, stalls
and exhibitions, etc.

5. Market surveys should be conducted to identify demand for goods in either

country. Consequent changes in production and consumption patterns should
be made.

6. Emphasis should be given on the conclusion of bilateral trade agreements in

the products which are untouched and required by both countries

7. The payment mechanism should be liberalised by introducing payment system

in domestic currencies, etc.

8. Switch trading and smuggling practices should be prohibited between these

two trading partners. It will lead to an increase in volume of trade between
India and USA.

54
 Chapter 5

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