Turn focus on export now

Sushma Ramachandran

CENTURIES ago, India was a major exporting civilisation. It exported gems, spices and textiles to all major markets of the world. Indian goods were known for their excellence and quality. The situation has changed radically. It now accounts for a minuscule 1.7 per cent of the world’s trade. Besides, quality of Indian goods is considered questionable. As a result, the country is fighting a battle against what are considered unjustified frequent testing of products in some developed world markets. The importance of exports to economic growth has also not been fully recognised even by policy makers. The fact is that economic powerhouses like China and the Asian tiger economies have achieved this status largely on the back of extremely high export growth. Indian industry, on the other hand, has been content to meet the needs of a large domestic market without making too much of an effort to target overseas consumers.

For the past few years, export growth has slowed down considerably. Exports actually fell from $468 billion in 2014-15 to $437 billion in 2016-17. This is far from the declared target of reaching $900 billion by 2019-20. With the uptick in demand from developed markets which are now on an even keel, exports showed a positive trend about 14 months ago. But it was a slow rise till last September when there was a spurt by 26 per cent over the previous year. This was followed up by an unexpected drop in October, possible due to the impact of GST. Clearly, export growth is not rising in a sustained way.

It is in this backdrop that the government announced a host of incentives for the export sector. The sops are estimated to cost the exchequer Rs 8,450 crore. They  have been given to small and medium enterprises, labour-intensive industries and agriculture-based enterprises. While these may provide short-term support for export industries hit by demonetisation last year and the rigours of shifting to the GST regime this year, more long-term measures are needed to ensure exports rise consistently by at least 15 per cent annually.

These would include first of all, an overhaul in the approach by government agencies to the export effort. It should not be the responsibility only of a single ministry to ensure the success of the country’s exports. All departments of the Central and state governments need to recognise the critical role of exports to the economy. The revenue agencies, for instance, are crucial in providing duty credits and refunds to exporters. Red tape needs to be cut down so that exporters receive their dues promptly and without needing innumerable clarifications. In the area of processed foods as well, the installation of cold chains to help in the export of fruits and vegetables is imperative. A tremendous amount of micro-management is needed to ensure that each export industry is given much-needed assistance.

Secondly, infrastructure needs to be upgraded on a priority basis, especially for export industries. This covers the entire gamut of power, telecom, ports and airports. It is here that exporters costs are higher than in other countries. Logistics costs alone are estimated to be 50 per cent higher compared to developed countries. One must point out that these issues have been flagged repeatedly over the years. It is a cliché by now to say that transaction costs are higher in this country as this is a well-known fact. What is needed are steps to ensure that export-oriented industries are given priority in provision of critical infrastructure to ensure that their costs are kept low enough for them to be competitive in world markets.

Thirdly, it has to be recognised that India is by all accounts fast losing its edge in labour-intensive industries. Other countries like Vietnam and Bangladesh are reported to record lower costs in labour-intensive sectors like apparel. One of the reasons is the greater flexibility in these countries to close down unviable units. At the same time, this does not imply that proper wages should not be made to those in these sectors. In fact, improved revenues by labour-intensive units in the export market should actually enable better wages and working conditions for employees.

Fourthly, much greater focus needs to be put on the quality of export-oriented industries. Pharmaceuticals is a glaring case where production of substandard drugs by a segment of industry has affected the reputation of the entire country. India has in the past been held up as a global model for producing high quality generic drugs at affordable costs. Sadly, the failure of Indian regulators to ensure that the highest standards are maintained in the manufacture of pharmaceuticals has tarnished this reputation. Though this may not be true of most manufacturers, it has led to stringent testing and safeguards being carried in developed country markets.

Maintenance of the highest quality standards needs to become part of the fabric of export industries. Brand India needs to become a symbol of excellence rather than of average quality. This is an issue that needs to be addressed with seriousness by the government if it really seeks to make India a significant player in global trade.

And finally, both regional and multilateral trade agreements need to be tied up with great care. As far as the WTO is concerned, India has been facing pitched battles with developed countries on issues linked to farmers’ livelihood issues. But regional or bilateral trade pacts are now becoming more relevant as these come into effect more quickly than decisions in the multilateral arena. It is for India to ensure that interests of domestic industries and consumers are kept paramount in entering into such agreements. 

In sum, the short-term incentives given now cannot be the only panacea to push up export growth. A long-term vision has to be taken of exports and the role of India in world trade. Few countries have achieved rapid economic growth without ensuring a significant rise in exports over the long run. Unless India too can achieve this goal on the trade front, it is likely to falter in its efforts to reach a high growth rate as quickly as possible.