No real plan for exports

Advisory report on trade promotion misses the mark

Last year, the Union ministry of commerce and industry set up a High-Level Advisory Group to recommend ways in which India could improve its export performance. This report has now been made public, and provides a useful indicator of the thinking in government circles about trade policy. From that point of view, it makes for worrying reading. While it accepts that much has gone wrong with India’s export performance, its recommendations are simply not up to the job. The report correctly points out that Indian exports are in severe trouble. This is not something that can be blamed upon deglobalisation or larger problems with world trade. The fact is that, as the report points out, India’s “relative trade performance has worsened precisely at the time that absolute levels of world trade growth have collapsed”. In other words, there are India-specific problems that are plaguing its exports performance. These are what need to be addressed. Unfortunately, the report, while including some useful recommendations, does not go far enough in answering the question on how exports can be enhanced. In fact, in some ways — such as in its approach to trade — it suggests moving backwards. For example, when it comes to the textiles and apparel sector, it suggests that India needs to examine the dangers of free trade with Bangladesh. Is that really the problem? The issue is that Bangladeshi textile and apparel production is globally competitive in a way that the domestic sector is not. The question surely should be how to ensure that Indian garment exporters can take global market share away from producers in Bangladesh and Southeast Asia, not ways in which they deserve further protection. 

On the macro side, the suggestions of the report are in line with concerns expressed elsewhere about constraints on investment, including poor transmission of monetary policy, thanks to the existence of small savings schemes. On trade promotion specifically, the report’s recommendations are infected by a bureaucratic mindset and insufficiently ambitious. For example, it suggests that the current investment promotion agency should be empowered to grant incentives, and that a trade promotion agency be created. None of this answers the central problem, which is that trade negotiation and management in India is crippled by being under line ministries rather than directly under the chief executive, the prime minister. In the United States, for example, the president is often granted fast-track authority to free negotiations from legislative oversight (but not approval) and the office of the United States Trade Representative reports directly to the White House.

The report also suffers in at least one case from too much optimism: It seems to believe that an export strategy can come from “big data analytics” from a “reputed institution outside the ministry”. This may be good news for think tanks or IT consultancies, but it is hardly likely that it will improve policy-making, and merely create another set of inputs that can be ignored. The central problem is and will remain one of competitiveness of domestic industry. It needs cheaper and more reliable inputs, flexible factor markets, and less red tape as well as lower taxes. This is not rocket science. It merely needs political will.