Building global competitiveness

It is disturbing that Indian exports which achieved a double-digit growth last year is now experiencing a slowdown. This phenomenon is more disconcerting because other sectors of the economy are also displaying a recessionary trend. The deceleration in exports is serious because the overall dependence of the economy on exports has risen. In the last few years, the export-GDP ratio has increased by over 50 per cent and export as a ratio of the tradeable sector is over 40 percent. Traditionally corporates are expected to maintain their sales graph through exports. There are a number of reasons why this is not happeningnow.

First, the corporate sector has a large under-utilised capacity, which because of lack of competitiveness, they are not in a position to use for exports. Second, the profitability in exports is not very attractive. Third, in the past, the external market demand was not a constraint. One of the major factors that have affected the trade sector is recession in the United States and some European market especially as the US is India’s largest trading partner.

This has further indirectly impacted our exports to other South-east Asian countries. Since about 40 per cent of their exports are to the US, its slowdown has indirectly affected India’s export to these countries. Since they are selling less, their import purchasing power has gone down. Because the external value of the rupee is showing signs of appreciation our rival countries are becoming more competitive.

A study carried out by the Indian Institute of Foreign Trade (IIFT) shows that over the last decade, when the world trade grew by 1 per cent, India’s exports rose by 1.2 per cent. Last year, world trade grew by 10 per cent and India’s by 12 per cent. This year, the world trade is expected to grow merely by 6 to 7 per cent. India’s trade is also experiencing corresponding impact which means low trade and squeezed margins for India Inc.

Indian corporates should view globalisation as a business strategy of the future.They should increasingly look outside the Indian borders and strive to be regional leaders, if not global. Besides, it is time they realised that trade and investment go hand in hand. They should plan for overseas expansion through licensing, franchising, setting up joint ventures or subsidiaries.

There is a clear road map that corporate India can follow to be competitive and successful in the international market. One, these companies should set right their inhouse systems and operations. Two, they should approach the government only with a charter of demands that prepare them to face competition rather than offer protection. Three, they should realise that geographical boundaries no larger define the perimeter of a market. Four,they should accept that trade and investment go simultaneously.

Indian corporates should also take advantage of regional economic blocks like SAPTA and future formations such as BIMST-EC (Bangladesh, India, Myanmar, Sri Lanka and Thailand). Cross-national investment flows can help these firms improve quality and intensify research and development and can also give member-states a combined strength of facing the developed world in various fora. Indian corporates should have a clear agenda for the World Trade Organisation (WTO) Ministerial Meeting at Doha this November. However, India should be prepared to make trade-offs. For, in international negotiations, there are always give and take. We will have to open up our markets to get better opportunities abroad.

One major area of concern for India is the surge in anti-dumping investigations and subsequent imposition of duties. Some of the major export items of India have been subjected to this form of non-tariff barrier in several major markets. The rules relating to anti- dumping duties in the WTO are not fully transparent and, therefore, diverse procedures are followed by different national governments. This reduces the transparency and the predictability of the anti-dumping regime. Many developing countries, including India, have been expressing serious concern on the impact of anti-dumping duties on their exports and their desire to put in the Doha agenda the issue of streamlining the current understanding on the anti-dumping and anti-subsidy agreement. While the European Union has shown a flexibility towards this demand, USA is still rigid in its stand that this cannot be discussed in the Doha meet.

The future is, therefore, cloudy and the Indian corporate sector must be prepared to face continued uncertainty in this regard. The sooner India Inc realise that competition, rather than protection, is the key to success in the long run, the better it is for their growth. Or else, India will lag far behind China, Taiwan and other South-east Asian countries.

(Professor B Bhattacharyya is Dean,Indian Institute of Foreign Trade, New Delhi)