Sakshi Aggarwal and Debashis Chakraborty.p65

There exists a rich empirical literature on the presence of intra-industry trade (IIT), i.e., simultaneous exports and imports within the same product groups and its determinants, both in the context of developed and developing countries. With deepening of Global Value Chains (GVCs) and International Production Networks (IPNs) across the globe, a rise in IIT has generally been noticed and India is no exception to this trend. The current paper analyses India's IIT in select sectors and decomposes the same in Vertical IIT (VIIT) and Horizontal IIT (HIIT) categories in terms of product quality, using trade data at the HS 6-digit level. It is observed that India's IIT is predominantly vertical in nature. India's VIIT has increased significantly over 2001-18 in select sectors, barring the exception of base-metals and iron-steel segments. The analysis next focuses on the determinants of India's VIIT during 2001-15 in a panel data framework by considering both country-specific and sectorspecific factors. The empirical results reveal that increase in capitalintensity, higher skill-intensity of workforce, multilateral as well as regional trade policy reforms, higher research and development orientation, trade facilitation measures and decline in industrial concentration facilitates India's cross-sector VIIT pattern. The interaction terms in the model indicates that growing sophistication in production may create greater scope for trade in vertically differentiated products. The results have interesting implications for India's recent manufacturing sector policy framework, particularly the 'Make-in-India' initiative.