Boosting Indian Exports, Japanese Style

Updated: May 25 2002, 05:30am hrs
Imports by advanced economies in 2000 grew by 11.6 per cent and by developing economies by 15 per cent. In contrast, in 2001, imports by advanced economies declined by 1.5 per cent and the growth rate of imports by developing economies was a mere 3 per cent. The external environment thus was not conducive for maintaining our momentum of export growth. We took advantage of the external environment in 2000 and our export growth in 2000-01 over 1999-00 was a spectacular 21 per cent. We added some $8 billion to our export basket in just one year. In 2001-02, we went along with the global slump of 2001. Our exports were down by 0.08 per cent, much less than the anticipated rise of 3 per cent. Of course, we have our shortfalls too to blame such as disruptions like the Gujarat incidents and the Mumbai truckers strike. Had they not happened, we would have perhaps seen 3 per cent growth adding some $2 bn more to export earnings.

International Monetary Fund projections indicate relatively modest import growth forecasts for advanced and developing economies for 2002 (2.1 per cent and 4.8 per cent respectively), with relatively better growth rates in 2003 (6.6 per cent and 7 per cent respectively). Going by the past relation between the growth rates of global imports and our export growth rates, we might not achieve the 12 per cent annual growth in exports in 2002-03. Achieving that target could get even more difficult now that China, as a member of the World Trade Organisation, will have improved market access. In addition, regional trading blocs such as the Asian Free Trade Agreement and the Asia Pacific Economic Cooperation could challenge our export ambitions.

Clearly, the need of the hour is a strategy to take a growing piece of the cake, even if the cake were to grow only modestly. The Medium Term Export Strategy has targeted a 1 per cent share in world exports by 2006-07, requiring a 12 per cent annual growth in our exports. In value terms, the projected level of exports in 2006-07 is a little over $80 bn. MTES is a great piece of desk research and is based on price competitiveness analysis of a wide variety of products imported by the top markets, notably the United States, Europe and Japan. In the case of US, for instance, MTES identified 60 potential items for India in top 100 imports of USA and also 56 items in which India can perform better in top 100 imports of US from India. The two lists of items have 26 in common.

These 26 items are among the top 100 imports of the US from the world as well as from India. This is useful information for exporters. But indicative product lists and projections are one prong of MTES. The other is a discourse on strategic policies and issues. It covers such aspects as policies for price competitiveness (the right Real Effective Exchange Rate and lower import tariffs), effective and responsive trade defence mechanisms, foreign direct investment policy to be balanced with regard to orientation to domestic and export markets, reduction of export transaction costs, upgradation of infrastructure, establishment of special export zones, well thought out free trade areas and preferential trade areas, flexibility in labour policy, steps to increase offtake of export credit, participation of states in export effort, and gearing small scale industries for export markets.

In the above listing, the ones that are difficult to achieve are a flexible labour policy and promotion of export-oriented FDI. Flexibility in labour policy is hard to come by in the organised sector, which includes many public enterprises in general and those in infrastructure in particular. Promoting export-oriented FDI too is difficult for a country which has been using its large domestic market to attract foreign capital. Also, export-oriented investment from abroad will shy away from coming if efficient infrastructure and disciplined labour are not present. Finally, it would seem that the government is pinning hopes on Special Economic Zones as a way to overcome infrastructure bottlenecks and labour problems. Yet, given the lacklustre performance of export processing zones, one is not quite sure what SEZs will bring.

Let us take it that all the right policies, institutions and infrastructure are in place. Because of them, our exporters may look respectable in terms of meeting delivery dates and achieving profitability. But in the final analysis, all the announced strategic policies put together cannot guarantee that markets for new products or new markets for existing products will open up or give us the $40 bn more export earnings in the next five years. We need an operational strategy for augmenting our export earnings by introducing new products to foreign markets in a number of ways. Take a leaf out of the decades-old Japanese export strategy.

In the 1960s, few Indians would return from a trip to South-east Asia or the Middle East without a couple of Nylon saris. They were made in Japan, a country where the natives until recently did not even know what a sari was. Retailers in Kuala Lumpur, Singapore, Jakarta and so on made money for themselves and the Japanese sari makers. While the Chinese tied up exceptionally well with major US superstores and mega-marts and thus enjoy export growth rates of unprecedented magnitudes, India does not have such arrangements in a major way. It may not be too late to approach major European and US retailers to gain an advantage.

In addition, it is worth considering the establishment of Indian Super Stores by a cooperative effort of the private sector giants (Tata, Reliance, and who ever else may be keen on joining), and possible collaboration with international retailers. ISS main aim would be to sell India-made goods. Each ISS should have multi-floor retail outlets with provision for wholesale, mail order and bulk order business. It could routinely organise shows to promote products that have not yet made a mark as major export items. An example: Indian beauties promote silk saris and teach the American, European, Chinese and Japanese ladies how to wear a sari. Formulating plans to set up an ISS is one example of an operational strategy for augmenting exports. More such ideas need to be elucidated.

The writer is Honorary Research Professor at the GITAM Institute of Foreign Trade, Visakhapatnam and Visiting Faculty, Centre for Public Policy, IIM-B. He can be reached at bhanoji@vsnl.net