Comparitive advantages and jobs

The past few years have seen a gradual shift in the way India looks at international trade. In the heydays of the import-substitution regime, we tried to substitute imports as much as possible and looked at exports as a way to earn foreign exchange to pay for the imports that could not be substituted (such as crude oil). The current mindset, as articulated by the commerce & industry minister, Kamal Nath, while presenting his annual supplement of National Foreign Trade Policy, reflects a refreshing change. We have at last begun to see exports as an ?engine? of ?growth and employment generation?. Even imports are seen in positive light now, recognising their contribution to industrial growth and competitiveness.

Several countries, especially those in East Asia, have created millions of jobs by developing export-oriented manufacturing industries. In the context of India?s shrinking employment in the organised sector despite acceleration in GDP growth, the importance of job creation through export-oriented production cannot be overemphasised. An RIS study, ?Towards an Employment-Oriented Export Strategy?, prepared for the ministry in 2006, made an attempt at examining the employment generation potential of exports. It found the merchandise export target of $150 billion by 2009-10, set by the UPA government in 2004, to have a potential to generate 81.57 lakh direct new jobs. However, an employment-oriented thrust to India?s export strategy could help create 124.44 lakh new direct jobs by 2009-10 with exports crossing $165 billion. Including indirect employment, export activity could support 210 lakh new jobs by 2009-10. In view of the robust growth of exports over the past few years, the overall export target for 2008-09 has been set at $200 billion.

So, what is ?an employment-oriented export strategy?? It involves consolidating current exports while moving up the value chain in labour intensive products such as agricultural products, textiles and garments, leather products, and gems and jewellery. In these products, despite our traditional comparative advantage, India?s share of the global market is only 3% compared to China?s 18%. What is required is the consolidation of fragmented production structures, an emphasis on brand building, and greater focus on design, quality control and compliance with global standards. All this could be supported by taking stakes in global marketing chains and forging global tie-ups.

The latest policy supplement continues the ministry?s employment-oriented thrust to India?s export strategy. For instance, steps have been announced to strengthen exports of agricultural and rural industry output, handicrafts, gems and jewellery, apart from cottage industry products, that could spell new jobs while earning foreign exchange and making growth more inclusive.

The development of clusters of small-scale industries?assisted by common facilities, infrastructure and information/marketing facilities for export expansion?is crucial to the effort.

The emphasis on promotion of exports of labour-intensive goods is a well-deserved priority. But we should not overlook India?s potential of emerging as a global manufacturing hub for technology or skill-intensive goods that can generate a high value-addition per unit of exports. India can become competitive in some of these industries, given our pool of trained human resources. While India has developed a niche in pharmaceuticals, chemicals, auto parts and some segments of automobiles, opportunities have been grossly missed in toys, consumer electronics and ICT hardware that are labour-intensive. The supplement has attempted to induce an export culture by introducing incentives based on incremental exports for producers of high-tech items.

Boosting exports in technology-intensive industries requires a different combination of policies aimed at achieving global excellence. Another RIS study, ?International competitiveness of knowledge-based industries in India?, found a wide variation in enterprise-level export performance within industries, despite similarities in policy environment and opportunities. Inherent enterprise dynamism has an obvious role to play. But policies could help in nurturing world-class enterprises in select sectors. These champions could be given official assistance to reach world scale and compete with peers worldwide. They could be assisted in several ways?by financial institutions, for example, offering preferential access to funds for overseas takeovers, major expansion of production capacity and so on. Brand-building, R&D and market development projects could be assisted, too, with support from diplomatic missions abroad in terms of market information and investment opportunities.

A number of Indian enterprises have begun to achieve global scale, and are looking to strengthen their strategic assets through international acquisitions. Such strategies could bring rich rewards in terms of their enhanced international competitiveness and future export possibilities. Access to global markets and technology through acquisitions, combined with local cost production bases in India, could turn Indian companies such as Tata Steel, Hindalco or Ranbaxy, among others, much more competitive and resourceful as international players.

To conclude, the time has come to turn India into a manufacturing hub for the world that would deliver jobs, incomes and foreign exchange for India?s teeming millions.

?The author is director general, Research and Information System (RIS) for developing countries. These are his personal views