Don’t neglect exports

Deceleration is a structural malaise

All is not well on the exports front. The National Council of Applied Economic Research has forecast a slide in India’s export growth rate to 9.2 per cent this year from 14 per cent earlier. Yet, astonishingly, the Prime Minister’s Economic Advisory Council has given a short shrift to exports in its slew of recommendations for putting the economy back on a faster growth path. Doubtless, the dot.com bust and recessionary winds blowing across the world’s biggest economies, including the United States, have been responsible for a slump in Indian export of services, especially information technology services. Therefore, improved global prospects could augur a recovery for Indian exports too. And to be sure, India has not suffered as much as Indonesia, Malaysia, Korea or Thailand — countries whose trade sectors account for significantly larger proportions of their national income compared with India’s 20 per cent share of GDP.

Nevertheless, export pessimism continues to plague economic policy making and blinds policy makers to interpret the sharp export deceleration as a structural malaise. In fact, the limited success of export policy measures outlined in the Union Budget for 2001-2002 and the latest Exim Policy underlie just that, rather than a cyclical problem remediable by policy fine-tuning. Export promotion strategies must be weaved around comparative costs and economic efficiency rather than treating exports as a residual after meeting needs of the domestic market. Exports of commodities such as jute, tea, sugar or textiles and steel items have suffered lately. India has failed to develop its food processing industry inspite of its comparative advantage in fruit and vegetable production. There is, indeed, no alternative to building up a cost-efficient production base for export promotion, sustained by technological back-up and considerations of quality, delivery schedules etc. A rule-based regime under the aegis of the World Trade Organisation, and the rising incidence of regional trade blocs only impart an urgency to the reversing of this neglect of foreign trade in India’s overall growth strategy.