S Chandrasekhar & C Veeramani: Reclaiming low-skill manufacturing

Three labour-intensive segments in sports goods sector offer India significant export opportunities

The Economic Survey 2016-17 fails to provide a clear-cut answer to the question it posed: “Clothes and Shoes: Can India Reclaim Low Skill Manufacturing?” Hearteningly, we have a plausible and precise answer. Within the textile, garment and leather sectors we sought to identify products with the following characteristics: First, their world demand needs to be growing; and second, the demand needs to increase with growth in future world incomes — i.e. demand for the product should be income-elastic. We believe that three segments in the sports goods sector — apparel, footwear and equipment — which are also labour-intensive, offer India significant export opportunities.

In value terms, the global trade in sports goods has grown annually at 5.1 per cent in the recent past. Although India’s exports of sports goods increased from $64.8 million in 1990 to $686.4 million by 2014, its current share in world trade in sports goods is a miniscule 0.82 per cent. Since India accounts for 4.7 per cent of the world’s export of non-sports apparel, it is a puzzle that India’s share in the world market for sports apparel is as low as 0.25 per cent. While India ranks third in the world exports of non-sports apparel, its rank in the case of sports apparel was 29th in 2014.  

It is painfully obvious that India’s exports of sports goods lags behind other developing countries such as Sri Lanka, Bangladesh and Vietnam, which made a conscious effort to expand the output of their sports goods industries. Today, these countries are already part of buyer-driven global production networks. Yet, we believe that there is substantial scope for India to step up the pace of her export growth and catch up with, if not surpass, other countries. What is our belief premised on?  

India can ride on the increase in the number of sports events across the world to grow her share in world trade in sports goods. As more individuals take holidays overseas, particularly in developed countries, they are exposed to leisure- and sports-related activities. The broadcast of major international sporting events to all countries around the globe, and real time communication of images and results of athletic achievements, can also affect the decision of individuals to participate in sporting activities.

There has indeed been an explosive growth in the number of individuals participating in athletic events. One does observe an increase in the number of professional, amateur and recreational runners. The number of athletic events approved by the International Association of Athletics Federations (IAAF) has increased from 30 in 1990 to over 200 in recent years. As per one estimate, one in 200 individuals in the United States participates in a running event. Another estimate indicates that, over the period 2009-2014, the number of participants in marathons increased by 92.4 per cent in Asia. If one were to include half-marathons and other races, the growth will be markedly higher.

Our conjecture is not based on what can be dismissed as casual empiricism, since our hypothesis is backed by data. First, much of the 10-fold increase in India’s exports of sports goods to $686.35 million in 2014 occurred in recent years, when there has been an increase in the number of sporting events all around the world. Second, based on a multivariate analysis of determinants of bilateral trade, we find that the number of sporting events held by India’s partner countries is an important determinant of India’s exports of sports goods. Sporting events such as the number of IAAF-approved events held by the partner country, participation of the partner country in international football tournaments and the hosting of marquee events, are key demand shifters which have a positive effect on India’s exports of sports goods.

Third, we draw a contrast between the rate of growth of labour-intensive goods as a whole and sports goods. We find that in the period 2010-14, the annual rate of growth of India’s sports goods exports is much higher at 24.59 per cent than that of overall labour-intensive exports, which grew at 8.86 per cent, and non-sports apparel, which grew at 10.93 per cent. Fourth, and more importantly, we do not find any effect of the number of sporting events held by India’s partner countries on the export of other labour-intensive products, including non-sports apparel. It is this differential finding that provides the basis for our argument that it is indeed possible to identify sporting goods as an industry with large potential in the context of “Make in India”.

We believe that the expression, “the devil is in the detail”, has not been recognised in discussions on “Make in India”. The discourse on make what in India has to be not only more nuanced but also granular to the extent outlined by us.

Our contention is that demand conditions are conducive for India to race ahead of other countries in export of sports goods, provided the ecosystem can be galvanised. Towards this end, it is important for organisations such as the Sports Goods Export Promotion Council and the Export Import Bank of India to identify and adopt best practices from other labour-abundant countries that have gained tremendous success in international markets in the sports goods sector.

Indian companies need to become part of buyer-driven global production networks, where the lead firms (usually large multinational corporations) concentrate on design, branding and marketing while the physical production is subcontracted to suppliers located in India. As a matter of extension, India’s exports will increase and the trade orientation will change towards traditional rich-country markets in North America and Europe. 
 

The writers are with Indira Gandhi Institute of Development Research, Mumbai. Shyama Balachandran and Purna Banerjee helped with data work