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GDP and Tea Trade: Discussion Paper (2017) K. Tripathi and V. Raju

This discussion paper examines the relationship between India's GDP, tea imports, and tea exports. The authors find: 1) There is a long-run positive relationship between tea imports and exports, but a negative relationship between imports and GDP. 2) In the short-run, tea imports are causally related to both GDP and exports. 3) Tea imports primarily depend on GDP and exports, with the latter two serving as independent variables and imports as dependent.

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41 views2 pages

GDP and Tea Trade: Discussion Paper (2017) K. Tripathi and V. Raju

This discussion paper examines the relationship between India's GDP, tea imports, and tea exports. The authors find: 1) There is a long-run positive relationship between tea imports and exports, but a negative relationship between imports and GDP. 2) In the short-run, tea imports are causally related to both GDP and exports. 3) Tea imports primarily depend on GDP and exports, with the latter two serving as independent variables and imports as dependent.

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Anonymous 5PYb4sAeCY
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GDP and Tea Trade

Discussion Paper (2017)

K. Tripathi and V. Raju

INTRODUCTION

India has been taking a very pivotal role in global tea trade since few decades. At present, India is
the second largest tea producer in the world only next to China, leaving behind Kenya, Indonesia and
Sri Lanka. Indian tea export is very significant to step up GDP in India.

In this present juncture, we have made a deliberate attempt to establish long term as well as short
term relations among tea import, GDP, and tea export after the globalized regime in India. The
estimated results of the Johansen’s cointegration test and vector error correction model (VECM)
suggest that there exists a long-run positive cointegrating relationship between tea import and tea
export in the long run and there is a negative relation between tea import and GDP in the long run.
The study has also established short term relations among tea import with GDP and tea export.
Granger causality test shows a bidirectional short-run causal relationship among tea import with
GDP and tea export. So, with the help of the estimated results, the study concludes that tea import
mainly depends on GDP and tea export. Tea import has emerged as a dependent variable and tea
export and GDP have been proved as independent variables in our present study.

Under the British colonial rule in India, tea cultivation was introduced and subsequently promoted as
an export oriented commodity. Tea export in India made a beginning in 1839 when the first batch of
Indian tea was sent to London for auction. Since then India has been exporting tea to most of the tea
consuming areas of the world including Europe, America, West Asia, Africa, and Australia. Over the
years, India had always dominated the global tea export market as the single largest exporter of tea.

India has been taking a very pivotal role in global tea trade since few decades. At present, India is
the second largest tea producer in the world only next to China, leaving behind Kenya, Indonesia and
Sri Lanka. Indian tea export is very significant to step up GDP in India.

India produces about 30% of world tea and exports about 13.35% in the world market. If we give a
look to the recent data, we will be able to understand the level of contribution of tea export on GDP
in our country. In 2015-2016, tea exports from India stood at 232.92 million kg, valued at US$
686.67 million. During 2016, major importers of Indian tea were Russia, United States, United
Kingdom, Egypt, Iran, Saudi Arabia, Germany, Morocco, Japan, France, UAE, Canada, Vietnam,
Netherlands, and Kazakhstan.

India can take advantage from the world’s excess demand for tea amounting to 87 million Kg. In this
liberalized economic environment, institutional arrangements and State intervention move towards
removal of tariff barriers. So the survival depends on maintaining export competitiveness. This focus
on attaining export competitiveness intensified in the new liberal trade environment following
formation of WTO and signing of various multilateral trade agreements. Thus it became imperative
for the Indian tea industry to be price competitive both in domestic and foreign markets.

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