Export dynamism is required for rapid and sustained economic growth.Prior to 1991, a 3.5 percent growth rate was related with a 4.5 percent increase in exports.However, after 1991, India’s GDP growth of over 6% was accompanied by real export growth of around 11%. Furthermore, the growth rates of developing countries show that focusing primarily on domestic demand/consumption-led growth makes it difficult to attain rapid, sustained, and high rates of economic growth. Furthermore, if domestic producers are competitive internationally, they will be competitive domestically, resulting in benefits for domestic consumers and businesses. But, being competitive exclusively within your own country does not guarantee efficiency and cheap costs.
- Domestic issues such as poor infrastructure, complicated land and labour markets have hampered the formation of favourable conditions for Indian businesses to compete in global markets.
- Limited market penetration in high-income countries has resulted in a disproportionate shift in India’s geographical orientation of exports from traditional rich-country markets to alternative destinations, such as African countries, due to low involvement in GVCs.
- Specialization vs. Diversification: Indian exports are characterised by a high degree of diversification and a low level of specialisation. This means that India’s exports are dispersed among a wide range of items and partners, resulting in a lacklustre performance when compared to countries like China.
- India has a low level of engagement in global value chains (GVCs) when compared to other major exporting nations in East and Southeast Asia. China’s participation in GVCs, on the other hand, has been a major driver of capital-intensive product export growth.
- Since the 1990s, China’s export promotion strategies have heavily leaned on a strategy of integrating its domestic sectors into GVCs.
- One, lower import duties on inputs. High duty on inputs results in expensive finished product that is out-priced by imported goods both in the domestic and export markets. Low duties make domestic firms competitive. Soon many will start shipping directly. Gradually, with better forward and backward linkages, jobs increase as both exporting and importing sectors grow. In Vietnam, five million workers work with direct exporters while seven million work for firms supplying products to exporters.
- Two, increase access to formal finance. Enable top one million small manufacturing firms to get bank finance without collateral at regular interest rates. Less than 4 per cent of small firms in India have access to formal finance. The figure for the the US, China, Vietnam and Sri Lanka is 21 per cent.
- Three, simplify process of exporting for small value consignments. Many people buy local sarees, suits, handicraft, ready-to-eat/cooked products and ask the shops to courier to friends and relatives abroad. For such small value exports, we need to simplify and integrate compliances relating to Customs, GST, DGFT and other concerned agencies. Schemes like making districts as export hubs would benefit from such simplification. The simplification will also help exports by small artisans and firms located in class B and C cities.
- Four, invite large anchor firms in critical products to set up operations in India. This is a tested strategy for promoting the manufacturing and export of Basket A items. Government initiatives like simplified labour laws, PLI incentives, low corporate tax on new manufacturing operations and scrapping of retrospective tax have enthused many firms searching for China plus-one location to shift base to India. India’s large number of competitive ancillary units and skill base are a big plus over competing countries.
While supporting new firms, focus must be on value addition. The lure of incentivising high turnover built on 90-95 per cent of imported inputs must be eschewed. Making of EV batteries from imported lithium-ion cells or solar panels from imported solar cells falls under this category.
- Five, ensure fast entry/exit of containers through the port/customs. Since inputs criss-cross across countries several times as parts and sub-assemblies before the final product is ready, low duties and quick port exit are preconditions for participation in global value chains (GVCs). Any delay at one point disrupts the entire value chain.
One of the goals of Atmanirbhar Bharat is to increase the share of India’s export in the GVCs. The suggested measures would complement the existing reforms, set India on the path of accelerated manufacturing and export growth and increase our share in GVCs.
How to structure:
- Start with India’s export potential and areas where India is string at and areas were we should focus on
- Mention the challenges India face in exporting
- Now, suggest measures required