Domestic Versus Imported Contents in Exports: The Case of India’s Merchandise Trade

Abstract

This article combines national input–output tables (1998–1999 to 2007–2008) with World Input–Output Database (1995–2011) to evaluate foreign value-added (FVA) content in India’s exports at aggregate and disaggregate levels. The results confirm rising FVA and declining domestic value added (DVA) in India’s total and merchandise exports across a majority of the commodities. India’s international fragmentation has risen but continues to be lower than that of East Asia and Association of Southeast Asian Nations (ASEAN). Strikingly, a regression-based decomposition analysis shows greater positive impact of rise in FVA on India’s export growth as compared to imports, leading to substantial net gains. Second, India’s DVA content in exports did not decline much during 2007–2011, thereby displaying a sluggish upward trend in its FVA content. This article advocates the need for striking a right balance between the goals of increasing FVA (improving linkages into global value chains) to enhance export competitiveness and maintaining DVA (supporting the ‘Make in India’ initiative) in exports to generate employment opportunities domestically.