A poorly serviced export engine

Efforts to push China into rectifying trade deficit with India, including minister-level talks in Delhi last month, have produced little visible result

After five years of stagnation, exports rose by almost 10 per cent in 2017-18. Along with surging import growth (19.6 per cent), this marks the Indian economy’s return to healthy growth. But the sad news is that we can do much better, if only…

Is that not the story of much of India? Some success, often dwarfed by inadequacies and stammering actions. Is underperformance our hallmark, even destiny? Is this tortoise never to really get its turn? A key issue in foreign trade: “Cotton, iron ore and copper, the mainstay of Indian exports to China have come under increasing scrutiny… former Commerce and Industry Minister Nirmala Sitharaman had said the export focus should shift away from raw materials…” (Business Standard, September 24, 2017). That such colonial-era items, especially cotton, figure in our export basket is a lamentable failure of industrial policy; we seldom address these issues.

The commerce department is the manager of our foreign trade. It is currently perhaps overwhelmed by defensive actions in the face of Donald Trump’s threats of new tariffs to “rectify” our favourable balance. In 2016, India was the US’ ninth-largest trading partner and one of the countries with which America has had a trade deficit of more than $30 billion. That upsets Mr Trump. But consider our dilemma. With China, India has a bilateral imbalance that has hovered at over $50 billion for several years; that really hurts, given our miniscule trade basket of $556 billion (2016), so much smaller than that of the US at $3.85 trillion. Efforts to push China into rectifying that deficit, including minister-level talks in Delhi last month, have produced little visible result. Our other official preoccupation is with the long-drawn 16-nation RCEP regional FTA, in which India is in a familiar outlier role. Against this background, one gets the impression that real work on export promotion at the international level gets short shrift. But consider: What might be the feasible, transformative actions?

First, valourise, motivate and utilise the diplomatic network as the export promotional arm. There exist 66 “commercial wings” in Indian missions funded by the commerce department, which also gives money to 40 other missions to undertake commercial work. Of the 10 overseas posts in which I worked in 1960-95, two (Mauritius and Germany) had such “wings”; perhaps in Kenya and San Francisco, too, we had commerce-funded posts. But our contact with the commerce department was minimal, confined to occasional routine correspondence. We played no role in their export target-setting, and were never tasked to undertake promotional actions; business and industry associations, and sometimes an export promotion council, sponsored the trade delegations that came on visits. In the subsequent two decades, that picture has changed little. Another example: A former envoy to Mexico speaks of efforts to get Indian exporters that had scaled that distant market to focus on Nafta opportunities; he got no support in New Delhi for this.

Second, India has no trade promotion agency responsible for external marketing, much less for operating offices abroad — though a few export promotion councils post officials abroad. As published case studies show, embassies in far-flung locations (among them Algeria, Hungary, Libya, Mexico, South Korea and the Gulf region) have played innovative roles in opening new markets for Indian exports. They seldom receive recognition, much less funding from the commerce department’s “market development fund” or other commerce department sources, unlike MEA’s economic divisions that support their marketing efforts. It is almost as if the commerce department and Indian embassies inhabit two parallel ecosystems.

Third, the 2016-17 annual report of the commerce department reveals in graphic terms the inward focus of its business promotion activities, via the EPCs, the state governments and the myriad agencies it runs, that mobilise the growers and producers of the country’s export basket. Clearly, these domestic tasks overwhelm this ministerial entity; the only mention of the commercial wings comes in a short section at page 163, at the very end of this report, just before the statistical tables. While the domestic base is vital in foreign trade, we neglect the external marketing actions at our peril. This is at the core of our weak export effort. The issue is seldom evoked or addressed. 

What is the way out? In some 30 countries across the world foreign and foreign trade ministries have been merged (this includes Australia, Brazil, Canada, Hungary, Ireland, Jamaica, Mauritius, New Zealand, the Netherlands, plus all the Scandinavians). I was among a few in India that had long urged such a merger, but have now come to realise that this would probably not work — in part, the rent-seeking ethos of our commerce establishment would not fit the external affairs ministry. South Africa tried such a merger in the late 1990s but gave up.

A better way is to seek other paths to harmonise actions between MEA, commerce, plus with all the other economic ministries, where similar hiatus exists. MEA’s economic diplomacy actions originated in 1973, directly in the wake of the first surge in world crude oil prices and the emergence of West Asia as a key hub of growth and business opportunity. It is long past the time to accept MEA’s legitimacy as a promoter of Indian trade and investment. Turf battles need to be curbed; more sustained use of the Indian embassy network across the official establishment so very obviously serves the national interest.

Can we create a special joint commercial promotion agency, manned by MEA and commerce officials, borrowing from Britain’s UK Trade & Invest, which was nested in that country’s Foreign Office — before they created a separate Department of International Trade in 2017? A few years back MEA had accepted an additional 25 officials in embassy commercial offices. If such an arrangement can end mutual contestation, and give a real push to foreign trade promotional actions, this may be worthwhile. Another option might be for MEA and commerce to jointly harness an industry body such as CII to run a joint arrangement, emulating “India Invest”, our 2009 innovative joint venture between Ficci (51 per cent), the department of industrial policy & promotion (34 per cent), and the state governments (15 per cent). It is unreasonable that a much-needed export push is stymied by institutional friction. Out-of-box thinking would serve us well. 

The writer, a former ambassador, author, and teacher, is Emeritus Fellow, Institute of Chinese Studies, Delhi