Channel: Trade

Thursday, 9 December 2010
India-US Trade in 2015
In recent years India and U.S have emerged as natural trade partners. The growing political bonhomie and the market factors like demand & supply gap will drive the India-US trade to a record high in coming years.
Tables & Graphs
 

In recent years, India and US have emerged as natural trade partners. With the economy becoming the axle of foreign relations, the two largest democracies are now closer than ever before. US policy to engage India in a much broader framework has clearly pushed the agenda of business. During the visit of US president to India in November, trade & commerce took the centre stage and the core of discussion was how to push the bilateral trade & investment. In the back drop of this discussion, we take a look at the quantum of bilateral trade between India & US in 2015.

 

India-US trade in goods has grown at a CAGR of 13.7% since 2001. If the year 2009 is excluded the CAGR is 18.2%. While the US import from India has doubled from its 2001 value, the US export to India has grown to more than four times in the similar period. The only decline in trade has been observed in 2009 with global recession impacting both export and import. Infact US exports to India has registered a sharp fall compared to its import from India. The major Indian export to US includes natural pearl, textiles, pharmaceutical products and electric machinery. The US exports to India are nuclear reactors, aircraft and pearls.

 

A look at the table of US goods exported to India show that the top 5 products in the list constitute more than 50% of overall exports. The nuclear reactors and machinery, aircraft and fertilizers among these are the sectors where demand in India is likely to increase at a brisk pace. Looking at the energy demand-supply gap in India and the emphasis on nuclear energy the nuclear trade is expected to register unprecedented growth in the next 5 years. Signing of a civil nuclear deal and a bill to provide guarantee to nuclear suppliers is all set to boost this sector. The vibrancy is very clearly visible in this sector with many developed countries rushing to tap the energy reform opportunity in India. US, due to its special relationship with India is likely to be the biggest gainer of this fiesta. Another sector which promises a huge leap in US exports to India is aircraft and spacecraft. India is one of the few civil aviation markets in the world that witnessed near double-digit growth continuously for the past two decades and this growth story continues. India's domestic passenger traffic is expected to grow at a rate of 9-10 per cent to reach a level of 150-180 million by the year 2020. It makes India one of the fastest growing aviation markets in the world with private airlines accounting for the major share. With the rapid growth achieved in recent years, India has become the ninth largest civil aviation market and is expected to be the fifth largest civil aviation market in the world in the next few years.Another sector with high growth possibility is fertilizers. With focus on agriculture in India going up, to achieve food security at 4% growth rate, fertilizer is bound to be a prime import for India. So supply constrains in India will ensure that US exports to India will register high growth in fertilizers.

 

The Indian goods export to US currently stands at $ 21 billion. Similar to US exports to India, Indian export to US also have five major goods which constitute around 50% of the total export to US. The natural pearl, apparel and pharmaceutical products have witnessed high growth over the years. As the demand is likely to retain the momentum, exports are bound to grow. The only problem which India faces is growing competition from other exporters to US. Most of these exports are driven by cost factor and countries like China & Bangladesh impact India’s apparel exports.

 

The Indian goods export to US currently stands at $ 21 billion. Similar to US exports to India, Indian export to US also have five major goods which constitute around 50% of the total export to US. The natural pearl, apparel and pharmaceutical products have witnessed high growth over the years. As the demand is likely to retain the momentum, exports are bound to grow. The only problem which India faces is growing competition from other exporters to US. Most of these exports are driven by cost factor and countries like China & Bangladesh impact India’s apparel exports.

 

The US Revealed Competitive Advantage (RCA) value (table 4) shows that there are 11 items in major US exports to India with more than 1 RCA value. RCA shows the competitiveness of a particular country in exporting an item w.r.t others. US RCA for aircraft, optic instruments, natural pearls, chemical products, nuclear reactors, plastic & fertilizers are higher than 1.25. So from a supply aspect these are likely to show a high growth rate.

 

A look at India’s RCA value (table 5) clearly reflects that India has not been able to tap the US market using its competitive advantage. The products like Lac and Carpets are not in top 15 in the list of Indian export to US despite their RCA being as high as 8.26 & 7.36 respectively. Other articles which promise a good outlook are organic chemicals, iron & steel, pharmaceutical products & mineral fuels.

 

So while India-US bilateral trade has fallen in 2009, the system has enough catalyst to bring it back to the pre-crisis momentum. The market factors like demand & supply gap and policy push like FTA will drive the India-US trade to a record high in the coming years. Even if a modest growth of 16-18% is assumed, India-US bilateral trade is likely to touch a figure of $ 90 billion by 2015.

 
 

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