Why Growth Matters by Jagdish Bhagwati Page A

the total merchandise exports of India in 1990–1991. The share of these products had, however, come to account for 65 percent of the total merchandise exports by 2007–2008. At the other extreme, ready-made garments, which are among the most unskilled-or low-skill-intensive products, saw their share decline from 12 percent to just 6 percent during the same period. Engineering goods and petroleum products, both highly capital-intensive products, witnessed the largest expansion.
    Clothing and accessories offer a telling example of the poor showing of India in the world markets for labor-intensive products. 3 These products represent an extremely large world market and formed China’s leading exports in the 1980s and 1990s. Indeed, even though electrical and electronic products have emerged as the country’s leading exports since the early 2000s, China continues to dominate the market for clothing and accessories. In contrast, India has scarcely been able to keep up with much smaller Bangladesh.
    This is evident from Table 8.1 , which shows the exports of clothing and accessories by India as percent of those by Bangladesh and China in the 2000s. The exports from India to the United States were approximately the same as those by Bangladesh between 2001 and 2007. As regards the exports to the world as a whole, India had a more than 40 percent lead over Bangladesh in 2002. But it steadily lost ground, with its exports exceeding those of Bangladesh by just 5.7 percent in 2007.
    1990–91 : Total Merchandise Exports: $18.1 Billion

    2007–08: Total Merchandise Exports: $163.1 Billion

    Figure 8.1. Composition of merchandise exports by India in 1990–1991 and 2007–2008
    Source: Authors’ construction using the statistics from Directorate General of Commercial Intelligence and Statistics
    Table 8.1. Exports of clothing and accessories (SITC 84) by India as percent of those by Bangladesh and China

    Source: Authors’ calculations based on the United Nations Commodity trade data
    When compared to China, India fares quite poorly in both the US and world markets. Even after the emergence of electronic products as its largest exports, China’s lead in clothing and accessories over India has widened considerably. In the US market, India’s exports as a proportion of Chinese exports fell from one-third to less than one-seventh between 2001 and 2009. The end to the multifiber arrangement under the Uruguay Round Agreement on Textiles and Clothing clearly exposed the inefficiency of the Indian industry vis-à-vis Bangladesh and China.
High and Rising Capital-intensity in Production
    A final avenue to raising gainful employment of the unskilled could have been a shift toward more labor-intensive technologies. But even here, the evidence points to movement away from rather than toward labor. Indian firms use more capital-intensive techniques in production in relation to India’s factor endowments to begin with, and technology has moved still further in this direction over the years.
    Hasan, Mitra, and Sundaram (2010) show that labor–capital ratios in the vast majority of manufacturing industries in India are lower thanin other countries at a similar level of development and with similar factor endowments. Comparing India and China in nineteen manufacturing industries, for example, they show that the capital stock per worker in India is consistently higher in India than in China, in the period 1980–2000. They also find India’s growth in capital stock per worker from 1980 to 2000 in these sectors is higher than that in China. It is not surprising, then, that whereas employment in these sectors shows steady growth in China, it has been stagnant in India. 4
Link to Firm-size Distribution
    Ultimately the flight from unskilled labor is at the heart of the unusually heavy concentration of Indian workforce in small firms, especially in the labor-intensive industries. A preponderance of