There is no silver lining yet on the exports front
Arvind Singhal / New Delhi Jun 18, 2009, 00:31 IST
Indian exports continue to decline at a precipitous rate. While the world economy shows some early sign of stabilising, there is no silver lining yet on the exports front for India. It is, therefore, not so surprising that the clamour for giving more sops to the exporters is rising by the week. It is also very likely that the government will give in to this clamour in the hope that additional sops and export subsidies in different guises will help put Indian exports on a growth trajectory. Whether these stimuli work or not is a matter of conjecture. However, what must clearly be understood is that unless India makes some fundamental shifts in its political and economic ideology, the export growth rate will slip to single digits in the coming years even when the world economy starts to grow once again.
Let us put some facts in perspective. The top five exporting nations in the world are Germany, China, the US, Japan and France. The top two did about $1,500 billion worth of exports in 2008, the US about $1,400 billion, and the next two about $775 billion each. India was a lowly 25th-ranked with exports of about $175 billion. Even Hong Kong’s exports (reported separately from China) were about $365 billion in 2008! As far as the top five traded product categories are concerned, besides fuels (about $2,040 billion), they are machinery (about $1,750 billion), office and telecom equipment (about $1,500 billion), automotive products (about $1,200 billion), agricultural products (about $1,100 billion), and chemicals (about $1,100 billion). Textiles & Clothing comes sixth (about $600 billion).
When we start mapping the most traded/exported products with India’s export basket, the conclusion is almost intuitive, that unless we take some fundamental steps to diversify India’s export basket, most fiscal incentives may only benefit the profitability of the few exporters in the short term and not give a big thrust to the overall export performance of the country.
India is hardly present in four out of the five (the exception being agriculture) exported categories that are dominated by Germany, China, the US, Japan, Hong Kong, Korea, Taiwan and even Singapore.
It does not take much to realise that for being successful in exports, there must be a comparative advantage with respect to other competing nations. Successful exporting nations of today have either very low labour cost (in labour-intensive products) or a very strong technological edge. In both cases, there must be the highest levels of efficiency. In all cases, there must be an appropriate scale of operation, low systemic operating costs such as cost of energy, transportation and logistics, transaction costs, and cost and quality of infrastructure including land and buildings. Finally, trade agreements also play a significant role in the overall export performance.
India’s limitations are well known: till the early 1990s, over one-third of exports came from textiles, then gems & jewellry (which, by the way, give the lowest net value addition), and then commodities like iron ore and some metals, followed by some chemicals. The little diversification happened almost by default such as pharmaceuticals (generics) and auto/auto components, and petroleum/petro derivates products. Even in the Textiles & Clothing category, India’s presence is extremely narrow in terms of the range of clothing and the fibre mix for fabrics. It is no wonder that China exports over $175 billion in textiles and clothing alone — almost equalling or exceeding the total Indian exports. As trade barriers came down in the last decade, India’s policy-stymied small scale industry could not really compete in the global markets. Since most large Indian business groups saw exports as an opportunistic by-product of their domestic market operations, few set up businesses (unlike China, Japan, Korea, Taiwan andSingapore) focused largely on export markets.
The way forward is to have a number of ministries including commerce, industry and finance work closely with each other and with ministries such as Textiles, Chemicals and others to identify the most promising manufactured products that India must invest in and then come up with policies that encourage large investments in such industries. Only then India will have a realistic chance to be in the top 10 exporting nations even 25 years from now.
(iv) Now the further, question is, if we can collect Rs.18 to 20 lakh crore (this amount is enough to make the nation developed)from domestic transactions from domestic consumption why we should bother about the earnings from export when:
(a) we know that exports are over-valued, hugely subsidised, get many tax exemptions, get export incentives in the shape of drawback/rebates and do not pay even income tax by obtaining umpteen tax holidays
(b)we know that exports are generated from cheap labour which shows that we have no respect for our human capital (which we can put to better use by using huge tax revenue of Rs. 18 to 20 lakh crore and by not doing so we allow our human capital to be employed cheaply thereby insulting them
I reason Indias exports will continue to be low coz local demand has so much potential in india that big or even small companies will concentrate on India itself and bad infrastructure means they will hardly be able to compete with other countries like India.
Imagine the demand when majority of Indians will start using ACs, Cars, build houses, electronic/electrical gadgets, computers use, travel in aircraft etc in future, which till now was mainly used by middle class and rich.
SEZ Policy is not a complete success but better infrastructure is the only hope.
even then Local demand and Indian consumer could eat up major percentage infrastructure being laid and nothing much may be left for exports. Ports, Highways, Rails being used to transport goods for Indian Consumer than foreign ones.
Let us hope that the new export policy wil take into account the facts presented by you. Commerce ministry should have a core group of leading personalities like you to guide the polcies for long term growth.
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