Relevance: GS Paper III (Indian Economy)
Source:
Why has this issue cropped up?
A debate sporadically rages on the desirability of the country’s export-led economic growth.
Significance of exports
Even if economic growth may not primarily be export-driven, exports signify the competitiveness of efficiency, quality and pricing of its products and services.
Challenges that India’s export face
- India faces the obligation to phase out its export incentives under the WTO Agreement on Subsidies and Countervailing Measures, having breached the $1,000 gross national income (GNI) per capita.
- Exports in India are seldom construed as a national quest generating an environment to excel in quality, reliability and customer care.
- Most of country’s exports happen only in a few states. Maharashtra and Gujarat together account for half of country’s total exports.
- Albeit external economic environment and factors like occasional sluggish global demand and falling commodity prices impact foreign trade, the crux of export promotion remains the supply side. For example, 50-60% of the country’s demand for electronic products and 70-80% of the components are imported.
- Agriculture is a big export potential area. However, the share of agriculture and allied products in India’s total exports has been falling. As long as local prices are low, exports are fine; once they rise, exports are restricted or banned.
- India’s exports growth in labour-intensive sectors is a cause for concern. With fully-loaded manufacturing wages averaging $1.8 per hour in Thailand, $0.49 in Vietnam, $0.38 in Indonesia and $0.35 in Cambodia, several industrialised countries have attracted a significant transfer of work in labour-intensive products. For example, several global clothing firms wanting to shift sourcing from China favoured new destinations like Bangladesh, Vietnam, Indonesia and Cambodia, not India.
- More than 70% of India’s manufacturing workforce remains employed in tiny, low-productivity firms with less than 20 workers each, most of which neither grow nor exit. They contribute just 12% or less of manufacturing output.
- The country lacks the mega-factories where thousands of workers could make garments or mobile phones, as elsewhere in Asia.
- As the World Bank emphasised the urgency to improve productivity of firms to create jobs and reduce poverty, its Global Competitiveness Report, 2013, showed India slipping to 60th rank in competitiveness, 31 places below China.
- Notwithstanding debilitating transaction costs over decades, trade documentation, procedures and processes continue to be labyrinthine, complex, costly, time-consuming. There is no relief from a plethora of trade rules and notifications.
- Quality control (QC) and production processes have been professed, but not practised; globally-accredited testing and QC laboratories have been planned, but little has happened in reality.
- Investment in R&D has been low, in addition to underinvestment in physical and human capital.
- Despite rampant crackle of ideas and initiatives like Customs Electronic Commerce Gateway, Risk Management System, On-site Post-Clearance Audit, 24×7 operations et al, there is little sustained change towards helpfulness and efficiency.
- Transport and logistics costs more often pose a barrier at least as large, and frequently larger, than tariffs.
- Not merely costs, even the timelines of delivery are affected. Proliferation of departments such as of logistics helps little
Way forward
- India’s export strategy needs to intensify its reach in wider geographical areas for export production, with relentless diversification of markets, such as Africa.
- Value of India’s electronics imports could overtake oil imports by 2020, pointing to urgently installing indigenous production capacity to target not only the burgeoning local market, but also a reasonably large pie in the $1.75-trillion global market.
- For a breakthrough in industrial manufacturing, essential for an export jump, India needs to identify product sectors conforming to “austere engineering”, or frugal engineering, and simultaneously craft USPs with a focus on a couple of items amenable to the country’s comparative advantage in terms of cost, quality, supply lines and logistics.
- It’s imperative for MSMEs to scale up with respect to accessing capital, hiring workers and acquiring land to be able to achieve lower per unit cost.
- India must strive to recreate the romance of a traditional heritage and tribal craft, its handicrafts and handloom, aligned to contemporary high-value relevance, involving world’s leading designers, integrating the country’s traditional exquisite and alluring craftsmanship with newer skills for presentation, labelling and packaging.
- India may break new grounds and garner its growing prowess in emerging technological segments. By 2022, digitisation is expected to help Indian businesses to unlock a potential $39-billion worth of export opportunities.
- Travel, media and entertainment, consumer brands and real estate are suggested as key verticals with high potential international opportunities.
- Some out-of-the-box initiatives will help make a dent in highly complex and competitive milieu, for example the Walmart-Flipkart combine to become India’s battering ram to break into the Chinese market.
- For rendering Indian industry truly competitive, it is imperative to sternly and stoutly minimise government, dismantle layers in administration, free labour laws of known rigidities, and generate a general commitment to “zero defect”.
- Following the Parkinson’s law, the government needs to implement what—in its 1991 comprehensive reform agenda—it avowed to dismantle the Directorate of Foreign Trade itself.
- There is a need of “internal improvements” like roads and canals to strengthen the economy of the young country.
