By Vasundhara Jain
In the Commercial Services sector, for which Indias exports amounts to 137 billion US$ and imports amount to 123 billion US$. In particular, India is the second largest exporter of computer and information services in the world. In 2011, India had a share of 20.7% of the top ten economies in export in this sector and 23.7% share for low-skilled computer services exports. It also exports high-skilled pharmaceutical R&D services along with others, majorly directed to USA (International Trade Statistics, WTO, 2011).
Trade in this instance has several benefits. Firstly, it increases employment opportunities in India for the comparatively low-skilled labour. Secondly, it increases job opportunities in the USA for the high-skilled labour by making processes requiring such high-cost labour feasible by the inclusion of low-wage labour from India. This is a win-win situation. Bhagwati (2004) illustrates one example from Pearlstein (2004): A bio-informatics business line for Information Management Consultants was made feasible due to the Indian engineers that were doing the coding work. For every such engineer employed in India, six engineers gained employment in US.
On the other hand, although almost 60% of labour force is employed in agriculture, a labour-intensive sector, its products form only about 11% of Indias exports. Although in 2011 India was the tenth highest exporter of agricultural produce in the world, labour productivity in agriculture was almost one third of the national average due to low capital investment 7 years back (Balasubramanyam, V.N., 2003). India has lower technology in agriculture than the world, but still exports due to factor-abundance (the factor being labour, of course). One possible reason for this could be that labour in India face barriers to movement due to language and culture which restraint agriculture workers from being employed in other industries.
A related issue is that of wage change due to foreign trade. The specific factor model states that increase in factor of production for one sector increases returns for factor used intensively for that sector. Labour is a specific factor in the short run due to barriers to mobility (Topalova, 2005). Increased FDI in services and manufacturing industries post-liberalization have led to an increase in wage returns for the employees: the per capita income in India, post liberalization, almost doubled by 2007. While returns to agriculture labour decreased.
For the long term, economist Jagdish Bhagwati, along with other researchers, proposed in his 2004 study that outsourcing to India could lead to skills accumulation in the country, making it more competitive. Capital accumulation would increase long-term production capabilities, which in turn would increase its competitiveness on a global platform.
Another point to note is that India has seen a limited application of scale economies, which many countries are already harnessing. Such benefits have been manifested mainly in increasing revenues generated by SEZs (Special Economic Zones) whose revenues increased by 121% last year (Statistics: Department of Commerce -iii, 2013), and there remains large scope for more such implementation.
Moreover, Chinas workers are increasingly demanding higher wages due to increased average earnings, and it is possible that India could develop a comparative advantage of lower labour costs, and overtake China as the global exporter. However, regulatory barriers; poor infrastructure; low education; corruption; language and cultural barriers restrict Indias international trade. A vast scope for export growth is possible if trade reforms for international integration are implemented.
Vasundhara Jain is currently pursuing Masters in Economics at the University of Warwick, UK. She has interned at the State Planning Commission MP, where she specifically studied how the banking system met the growth needs of the state. She has volunteered in different capacities at several NGOs, including ones for development of underprivileged children, and for HIV+ and rehab-seeking residents. . Her further interests including traveling, writing and playing squash. She blogs at www.vasujain.com, and can be contacted at vasu@vasujain.com.