Since 2015, India’s BRCA index value in the Textiles, Apparel, Footwear and Leather sector with China has been dwindling. From a value of about 12, it has fallen by around 60 per cent to about 5 – it has more than halved.

In trade theory, one of the chief reasons a country trades is because it has comparative advantage arising from labour productivity. This reasoning has been embedded in Ricardian trade theory. To measure this competitiveness, Hungarian-American economist Bela Balassa devised the Revealed Comparative Advantage (RCA) index. It is expected that Comparative Advantage which arises from labour productivity is reflected in the volume of a country’s exports. The same concept has been extended into measuring Bilateral Revealed Comparative Advantage (BRCA). Akin to RCA, it is measured as the share of exports of country A to country B in a certain commodity class, as a fraction of country A’s total exports, relative to exports of the World in the same commodity class as a fraction of the World’s total exports.

Since the BRCA is a relative measure, the fall in India’s BRCA in this sector implies either the fraction of India’s exports in this sector has been falling or it is the world’s share. Data suggests that it is the former as can be seen in the figure below. While the world’s share has plateaued after a gradual decline, India’s share has seen a meteoric rise up to the year 2014 and fallen thereafter. More importantly, India’s relative share and the BRCA value have very similar, almost congruent, lines. There could be myriad reasons to explain this finding. But some indicators point in one direction.

Firstly, there have been no serious policy changes on India’s part in this particular sector. In fact, with the introduction of MEIS in 2015, exports should have seen a boost. Secondly, it is coincidental with the fall of India’s exports in this sector to the world. It must be added here that India’s share has remained fairly constant in these sectors. Thirdly, as in the graph above, the rest of the world has not been eating into India’s advantage in this sector. Stringing these facts, we may cursorily believe that such a fall may be owing to Chinese demand or Chinese policy in this sector. Further thoughts are welcome.