Social Sector Investment Must For Export Growth: Study

To promote exports, India has to invest more in social sectors like health and education, increase the savings and investment rates, open up to technology and foreign direct investment flows, reform trade and domestic policies to improve the allocative efficiency of the economy and also the efficiency of enterprises, and consider joining trade blocks.

But, in following these policies in todays scenario, India faced certain potential constraints. It was subjected to closer surveillance by the World Trade Organisation (WTO) in matters like child labour and the environment, the prospects of growth in the advanced countries were uncertain and different trading blocks constrained the trade opportunities available to developing countries.

 

These were some of the conclusions drawn by Rajesh Chadha during his presentation of a study of Indias export performance in comparison to east Asian countries at the National Council of Applied Economic Research (NCAER). The study was undertaken at the request of Manmohan Singh when he was finance minister as part of his attempt to educate fellow MPs on the policy imperative facing the country.

Singh posed several questions during the presentation: Indias and Chinas export structures were the same but why did China enjoy such rapid growth? The two were at the same level around the mid-seventies but why did China jump in the eighties? Why did Indias free trade zones fail when Chinas export zones succeed?

Some answers, he felt, may lie in the NIEs persistently undervalued exchange rates and the fact that they went into light industries first whereas India went in for heavy industries under the guidance of Mahalanobis who was stuck with the Soviet model.

Rakesh Mohon, director-general of NCAER, felt that what singled out India was its degree of protection and resultant distortion. No country had an average tariff of 100 per cent. This implied severe restrictions on the EPZs, rendering them inefficient. Tariff wise we are where China was in the eighties but still there is criticism that we are too open.

The hard core of Chadhas study is a review of Indias export performance since the fifties, focusing on the changing pattern of various commodities and commodity groups with respect to Indias and world exports. Indias experience has also been contrasted with that of China and various East Asian countries.

The study has adopted the flying geese paradigm to explain how the East Asian countries progressed along the road to high exports and economic growth and has tried to fit India into this model to indicate where exactly it stands. Countries have typically begun at the labour intensive end like textiles and shifted to more sophisticated sectors like steel.Once production and share of an industry of a country matures and stabilises, a process of phasing out begins, leaving the field open to other growing economies. This up and down dynamic divides countries into leaders and followers and creates the flying geese pattern.

Indias share of manufactured exports to its total exports is where Koreas and Taiwans were around 1970. Thus India is where Korea was around 1970 and Thailand was around 1980. But India has a higher share of chemicals in its exports than any of the countries mentioned here.