MINISTRY OF FINANCE GOVERNMENT OF INDIA India's International Trade Integration & Internal Integration (Trade & Labour) Module 10.2 Contemporary Themes in India s Economic Development and the Economic Survey Arvind Subramanian Chief Economic Adviser 1
Overview International Trade Integration Internal Integration (Trade) Internal Integration (Labour) 2
Section 1 International Trade Integration
Overview Do you know your trade? Global Trade Trends India s Trade & Trade Policy Trends Can the world absorb another China as India? 4
Do you know your Trade? Are exports good or bad? Are imports good or bad? 5
.do you really know your Trade Exports can be bad X s reduce domestic absorption/consumption Imports can be good M s reduce prices X s reduce availability of domestic goods (hence export restrictions during global food crisis) X s results in over exploitation of some resources (Hence, X s of sugar = X s of water) M s are inputs into production and can increase competition M s bring in technology 6
We are in the fifth---post - Hyperglobalisation---phase Globalisation of the world (1870 to present) 30% 25% 20% First globalization Deglobalization Postwar Era Reglobalization Hyperglobalization Future??? 15% 10% 5% 0% 1870 1890 1913 1929 1939 1950 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 Merchandise exports/gdp Service exports/gdp Non-oil Export (WTO)/GDP 2015 7
Hyperglobalization coincided with Rapid Growth in emerging markets, including India & China 9.0 8.0 GDP per capita growth ( % ) Postwar reglobalisation Era of hyperglobalization 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0-1.0 Source: IMF WEO High income countries Middle income countries 8
Rise of the mega-trader China Peak Merchandise exports as share of world exports by mega-traders in history, 1870-2030 (%) Year United Kingdom Germany USA Japan China 1870 24.3 1913 18.5 18.0 1929 16.6 14.4 1950 16.2 1973 1990 8.2 2000 7.4 2012 2020 (projected) 12.1 2030 (projected) 15 Source: Maddison 1995, UNCTAD various years, Authors calculations 9
Low & declining Policy Barriers in Goods, High Barriers in Services Source: OECD 10
Proliferation of regional trade agreements (RTAs) Partial Scope Agreement 28 Free Trade Agreement and Economic Integration Agreement Free Trade Agreement 23 24 22 Customs Union and Economic Integration Agreement Customs Union 16 17 15 12 12 10 10 12 13 12 11 8 8 5 5 4 3 2 1 1 2 2 2 2 2 1 1 1 1 1 1 1 1 1 1 1 1 1 2 1957 1959 1961 1970 1971 1972 1973 1974 1976 1977 1979 1981 1982 1983 1985 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: WTO 11
India s Trends in Trade & Trade Policy 12
Why Trade Matters for India? Indian growth now so entwined with World growth Indian growth depends on Indian export growth 12 10 Correlation coefficient: 0.20 Correlation coefficient: 0.42 30 25 GDP Goods (non-oil) -X Services-X 8 20 6 15 4 10 2 5 0 India World 0 1980-1990 1991-2002 2002-2010 2011-2016 Source: IMF WEO 13
How/when do countries lower their trade barriers? On their own (unilaterally) Under World Bank/IMF programs Under the WTO Under bilateral and regional trade agreements 14
Indian now more open than China measured as Trade share of GDP 18.0 16.0 14.0 12.0 10.0 China Service Trade India 70.0 60.0 50.0 40.0 China Merchandise Trade India 8.0 6.0 4.0 2.0 0.0 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 30.0 20.0 10.0 0.0 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 70.0 60.0 China India Total Trade 50.0 40.0 30.0 20.0 10.0 0.0 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 15
India actually trades a lot when its size is accounted for 16
India has reduced its tariffs dramatically Source: Business Standard 17
India has high restrictions on services trade 100 90 Service Trade Restriction Index 80 70 60 50 40 30 20 10 IND IDN VNM THA MYS CHN RUS BRA KOR JPN DEU GBR USA 0 0 10000 20000 30000 40000 50000 60000 70000 Per-capita GDP (current US$) 18
India and the World Trade Organisation (WTO) Original member of the GATT (precursor of WTO) Engagement until 1994 based on seeking special and differential treatment Since 1994, active participant but balancing the tensions of being large but poor 19
Evolution of India s FTAs over the years: Looking Close and Looking East Source: Department of Commerce and Industry, International Trade Agreements 20
Did India benefit from FTAs? How to measure it? Source: Economic Survey 2015-16 21
Trade effects of FTAs Imports Mean gr. of import 3 years before FTA (%) Mean gr. of import 3 years after FTA (%) Non-FTA Countries FTA Countries 14.8% 17.9% 16.7% 25.3% Sources: Directorate General of Commercial Intelligence and Statistics, Kolkata; BACI dataset, maintained by CEPII, Paris. 22
Tariff changes under FTAs Imports Pre-FTA Post-FTA Non-FTA Countries 11.4% 10.1% FTA Countries 11.2% 5.8% Sources: Ministry of Commerce and Industry; World Trade Organisation and World Bank s TRAINS dataset 23
Can World Absorb Another China as India? Today World India China World (Fixed) Change in 10 years India China RoW (Notional) Goods exports/world GDP 21.1% 0.4% 2.9% 0.0% 0.8% 1.4% -2.1% Services Exports/world GDP 6.1% 0.3% 0.4% 0.0% 0.5% 0.2% -0.7% Goods exports and services/world GDP 27.3% 0.6% 3.3% 0.0% 1.3% 1.5% -2.8% Assumptions on GDP growth: World (3%), India (8%), China (5%) Assumptions on export growth: World (3%), India (15%), China (7%) 24
Section 2 Internal Trade Integration
Overview Inter-state trade in India: Trends Does language matter? Import/Export Patterns of Indian States
We have made Europe. Now we must make Europeans. * * Originally attributed to Massimo D Azeglio, We have made Italy. Now we must make Italians.
One India: Dil hai Hindustani!: We have created Indians
One Market: GST Co-operative Federalism Source: http://www.tribuneindia.com/news/business/two-day-gst-council-meet-starts-in-srinagar/409028.html
Inter State trade in India accounts for at least 54 % of GDP 74% 76% 78% 54% 20% 20% 12% Indonesia Canada European Union India China Brazil United States
India s internal trade = 1.7 times international trade; 32 % of GDP 6 Ratio of Interstate/International Trade BRAZIL ('99) 5 4 3 USA ('15) 2 INDIA (C+F, '15) CHINA ('09) 1 INDIA (C, '15) EU ('15) CANADA ('12) INDONESIA ('05) 0 0.5 0.7 0.9 1.1 1.3 1.5 1.7 1.9 2.1 2.3 2.5 Log of Area (in millions)
Language (Hindi) not a possible barrier to trade
Exports of Indian States
Imports of Indian States
Trade Volume of Indian States
Trade Balance of Indian States
Section 3 Internal Labour Integration
Overview Who is a migrant and why do people migrate? Migration in India: NSSO, Census Migration in India, New Approaches: CMM and Railways Measures Trends in migration and remittances
Who do we define as a migrant? According to the Census, a person is a migrant when he/she is enumerated in the census at a different place than his/her place of birth (measures in-migration) According to NSSO, a person is a migrant when he/she has stayed for more than six months in a place which is different from his/her last usual place of residence (measures both in and out migration)
Why do people migrate? Source Destination Not enough jobs Fewer economic opportunities Inadequate conditions Famine or drought Job opportunities Better living conditions Education Better medical care Industry
Migration in India 2007-08: The NSSO Take Source: Tumbe (2015) Missing Men, Migration and Labour Markets. Indian Journal of Labour Economics.
Migration in India till 2011: The Census Take 50 Migrants stating economic reasons for migration (million) have increased rapidly between 1991 and 2011 according to Census 51 40 In Millions 30 20 26 33 10 0 1991 2001 2011
Migration in India till 2011: The Cohort-based Migration Metric (CMM) Take In Thousands 1200 1000 800 600 400 200 0-200 -400 Net in migrants in 20-29 age cohort TN KL MH DL KA GJ GA 1991-2001 (Thousands) 2001-2011 (Thousands) In Thousands 7000 6000 5000 4000 3000 2000 1000 0 Net out migrants in 20-29 age cohort PB HR HP AS AP WB OR MP* RJ BR* UP* 1991-2001 (Thousands) 2001-2011 (Thousands)
Migration in India since 2011: The Railway Nets Approach Millions 9.6 9.4 9.2 9 8.8 8.6 8.4 8.2 8 Total Net Flows at All India Level 7.8 2011-12 2012-2013 2013-14 2014-15 2015-16
Top Inter-State Migration Routes with Highest Passenger Density
State-wise Heat Map for Passenger Flows in 2015-16
District-wise Heat Map for Passenger Flows in 2015-16
Out-Migration today has strong links with the past Regions that witnessed high outmigration in the late 19 th century tend to exhibit high rates of outmigration even today Migrations have often been maledominated, semi-permanent and remittance-based in nature Significance of Migration Networks Source: Tumbe (2012, Figure 2), Migration Persistence across 20 th century India, Migration and Development, 1 (1).
Out-of-district migration is emanating from a growing number of districts in India CMM Density plot across Districts
Female out-migration for economic reasons is increasing Millions 10 9 8 7 6 5 4 3 2 1 0 Migrants stating economic reasons for migration* 1991 2001 2011 *Source: Census
Labour Migration and Income are highly positively correlated in both measures CMM Measure Average Passenger flow in millions (2013-2014) 5 4 3 2 1 0-1 -2 Railways MeasureDL MH ASN WBAPC TN GJ TR KA CG PB OR HP JK KL UK MPRJ HR BRJH GA -3 UP 0 100 200 300 Per Capita GSDP in Rs. Thousands (2013-14)
Migration for work in India is less than half of that in China as of 2015-16 Millions 300 250 200 277.50 Migrant workers estimates for 2015-2016 150 100 100.02 95.02 50 - China India (1) India (2) (1) is obtained by adding CMM estimates till 2011 and Railways estimates till 2016 (2) is obtained by adding Census estimates till 2011 and Railways estimates till 2016 Source for China data: China Labour Bulletin
How much do people remit when they migrate? Domestic remittance economy estimated at $10 billion in 2007-08 or $30 billion in 2016 60% Inter-State transfers 80% towards rural households Financed over 30% of household consumption expenditure in remittance receiving households Domestic remittance dependency was high in Bihar, UP and Rajasthan and has generally grown since the 1990s, most notably in Orissa Source: Tumbe (2011) Remittances in India: Facts and Issues. Indian Journal of Labour Economics.
Making One India: Next Steps Does the law need to catch up with economic realities?
Recommended Resources J J Schott, Free Trade Agreements: Boon or Bane of the World Trading System, Peterson Institute of International Economics (PIIE) Angrist, Joshua D., and Jörn-Steffen Pischke. Mostly harmless econometrics: An empiricist's companion. Princeton University Press, 2008 Plummer, Michael G., David Cheong, and Shintaro Hamanaka. Methodology for impact assessment of free trade agreements. Manila: Asian Development Bank, 2010 Subramanian, Arvind, Living in the shadow of China s Economic Dominance, 2011 Subramanian & Kesseler (2014), The Hyperglobalisation of Trade and its Future, Peterson Institute of International Economics (PIIE) 56
Recommended Resources (Contd.) Chinmay Tumbe, Missing Men, Migration and Labour Markets: Evidence from India, October 2014 Report of the Working Group on Migration, January 2017 Last Train Home, 2009 (documentary) The Unreserved, 2017 (documentary) Rose, Andrew (2003), Do We Really Know that WTO Increases Trade?, American Economic Review, 94 (1), pp.98-114 Directorate General of Commercial Intelligence Services (DGCIS), India s Internal Trade: A Review of Interstate Movement of Major Commodities, Report. Economic Survey 2015-16, 2016-17