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Role of Intensive and Extensive Margins in India’s Agricultural Exports
Increasing exports has been at the centre of policymaking for ensuring India’s economic growth and development. An analysis of the relative contribution of intensive and extensive margins to growth in India’s agricultural exports from 2001–20 reveals that the intensification of the export of existing products to existing destinations dominated export growth, whereas the contribution of export diversification has remained subdued. Broadly, the results indicate that India’s exports along the extensive margin have not been fully exploited and that export diversification holds the key to higher export growth. There is a wide scope for expansion of India’s agricultural exports through the development of new product varieties and markets.
The authors are grateful to the Indian Council of Agricultural Research (ICAR) for extending financial support to conduct this paper as part of ICAR– International Food Policy Research Institute (IFPRI) workplan.
India’s agricultural sector has become integrated with the world market, with a significant increase in the volume of trade over time. This has been achieved through a progressive removal of trade barriers, multilateral and free trade agreements (FTAs), and domestic policy that encourage farmers to produce for export and provides incentives to exporting firms (Jha and Srinivasan 2004; Mullen et al 2004). Consequently, India’s agricultural exports have increased dramatically, moving from $6.4 billion in 2001, to $37.3 billion in 2019, and finally to $38.8 billion in 2020 (United Nations 2021). The import of agricultural products to India has also increased between 2001 and 2020, moving from $1.2 billion to $7 billion (United Nations 2021). These statistics show that the agricultural trade surplus has been in India’s favour. Further, the share of India’s agricultural exports has increased steadily from 1.35% in 2001 to 2.60% in 2020. The share of world imports to India has also increased, moving from 0.69% to 1.67% (United Nations 2021).
Many studies have analysed the direction and determinants of India’s agricultural trade flows. Studies have examined the competitiveness of agricultural exports, price distortions due to government interventions, trade policy and development, and trade protection (Misra and Rao 2003; Dhar 2007; Panda and GaneshKumar 2009; Rao 2001; Hoda and Gulati 2013; Saini and Gulati 2017). A few studies have analysed the effects of FTAs (including agreements made with the World Trade Organization [WTO]) on India’s agricultural trade flows (Veeramani and Saini 2010; Francis 2011; Jagdambe and Kannan 2020). These studies, importantly, have ignored whether export growth is due to an increase in the quantity of existing exports going to established destinations (intensive margin), or to the export of new products to existing markets, or to the extension of exports to new geographical markets (extensive margin). To the best of our knowledge, no empirical studies are available that have conducted a decomposition analysis of India’s agricultural exports explicitly along these channels.
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