Comparative Advantages and Balance of Payment Analysis of India

This article discusses the comparative advantages of India in the global market and analyzes the balance of payment of India over the decade. It includes information on India's economic reforms, industries with comparative advantages, and sectors that need growth. The article also includes graphs and references.

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Title: International Economics
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Contents
Comparative Advantages of India over the Decade...................................................................3
Analysis of Balance of Payment of India over the Decade........................................................3
References................................................................................................................................12
Image Reference.......................................................................................................................12

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Comparative Advantages of India over the Decade
Comparative advantage implies a country’s capacity to execute an activity with more
efficiency than any other activity. Since the nineties, India has embarked on a series of
economic reforms all with the primary goal of removing the barriers of a closed economy and
welcoming in other countries. Among various such accomplishments, most noteworthy has
been the varied efforts to achieve a liberal and ‘free-thinking’ participation in international
trade with other countries. Thus, it has been anticipated that the activities of free trade in the
country would have, in all probability, resulted in numerous amount of changes in the exports
so as to show the country’s comparative advantage standing in the global market (Asuyama,
2012). It is a statement of fact that any country’s comparative advantage in terms of the
global market may have been swayed by an increase in trade association with several nations
(Bedi, 2016). Various studies have shown that comparative advantage in India is primarily
found in the industries of cotton, chemicals, steel, clothing etc. As far as commodities are
concerned, the comparative advantage of India advantage can be seen mainly the fields of
agriculture and various other associated products. However, there are certain sectors where
India’s comparative growth needs to increase since they are highly labor-intensive – they
include leather, textile etc.
Analysis of Balance of Payment of India over the Decade
The balance of payments is an instrument of economic studies by which the financial
standing of a country in terms of international finance can be gauged. Almost all the trade
activities performed by public and private sections of the economy are subject to inclusions in
the calculation of the Balance of payments.

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Source: (www.unitus.vc/resources/defining-base-of-the-economic-pyramid-in-india)
In India’s case, the country has shown significant development in the balance of
payments, especially after introducing a new economic policy in the early 1990s. (Yu, 2011).
Owing to numerous and a wide variety of an assortment of measures taken up during the
period of economic transformations, the performance of various economic sections
experienced a gradual growth. Courtesy the stabilization factors introduced during the
aforementioned periods, there were a sharp fall and a reduction in trade deficits and the level
of import in the years that followed (Matsuoka and Kikuchi, 2012).
The following graphs explain the balance of payments of India in a more elaborate
manner –

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Source Image: (www.rba.gov.au)

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Source Image: (www.rba.gov.au)

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Source Image: (www.rba.gov.au)

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Source Image: (www.rba.gov.au)

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Source Image: (www.rba.gov.au)

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Source Image: (www.rba.gov.au)
The above graphs represent the highs and lows of India over the past ten years. Some of
the most important ones are –
 Lows
With the decision of the US Federal Reserve to commence the tapering of their
purchase program bond in the year 2013, India experienced currency depreciation and
sizeable capital outflows. This also worsens the inflation problem in India due to the
increase in import prices. Also, there was an increment in the cost of borrowing for
India in foreign currency. India also has to justify themselves in the global market that
they are not repeating the balance of payments crisis, which happened in 1991. The,
then prime minister had to make a speech for justification and clarification.

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 High
The growth in the GDP of India by 8.2 percent in the year 2018-19. When
compared with the year 2017-18, there was an increase of 13.8 percent. The biggest
high was that Indian economy becomes the fourth fastest growing economy in the
world. India skipped five places up in the World Economic Forum in comparison to
its position in 2017 and ranks at position 58 in 2018, amongst the 140 other
economies of the world. The main contributors in this position hike are the effective
research institutions of India that are utilizing innovation and improving every year.
The competitiveness rank in India, which was around 52.73 from 2007-17,
reached new and bigger highs in the year 2015 by reaching at 71.00 and the lowest in
the year 2017 was 39.00.

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References
Bedi, P. (2016). Revealed Comparative Advantage and Trade Specialisation: The Case of
India. FOCUS: Journal of International Business, 3(2), pp.58-87.
Yu, M. (2011). Patterns of Trade, Comparative Advantage, and Productivity in the ASEAN-
China-India Region. SSRN Electronic Journal, pp.35.
Matsuoka, Y. and Kikuchi, T. (2012). Footloose Capital and Comparative Advantage. Pacific
Economic Review, 17(5), pp.677-686.
Asuyama, Y. (2012). Skill Distribution and Comparative Advantage: A Comparison of China
and India. World Development, 40(5), pp.956-969.
Image References
Unitus Ventures. (2019). Defining “Base of the Economic Pyramid” in India | Unitus
Ventures. [online] Available at: https://www.unitus.vc/resources/defining-base-of-the-
economic-pyramid-in-india/ [Accessed 4 Mar. 2019].
Ma, J. and Roberts, I. (2018). Economic Trends in India | Bulletin – June Quarter 2018.
[online] Reserve Bank of Australia. Available at:
https://www.rba.gov.au/publications/bulletin/2018/jun/economic-trends-in-india.html
[Accessed 10 Mar. 2019].