The new five-year foreign trade policy aims at doubling India?s market share in global merchandise trade within the next five years. If we succeed, then our current share of around 0.8% in global exports should increase to 1.6%. When measured by our recent record, this target appears ambitious. But when set against China?s recent success, the five-year target is a timid confession that we have not even considered benchmarking our performance against the world?s biggest exporting success story.
From 2000 to 2003, China increased its share in world exports from 3.9% to 5.9%. This gain is bigger than the market share we hope to reach by 2009. Considering that during the same period India?s share moved marginally from 0.7% to 0.8% does imply that we?ll have to work hard to reach our target. This is because competitiveness is a relative game. During 2000 to 2003, the market shares of other Asian tigers like South Korea, Malaysia, Thailand, Singapore and Indonesia fell from 8.5% to 7.8%. This has happened because, relative to China, these countries? competitiveness in global markets had declined, and ours remained almost constant. The doubling of our market share over the next five years means that our competitiveness vis-a-vis China would have to improve. This would automatically translate into better competitiveness vis-a-vis the other Asian tigers.
This does seem a tall order. But there are success stories in India that show that it can be done. During the 90s, India clocked the fastest average export growth of 17.3% per annum in services? exports in the world, leaving China behind at 15.8%. In fact, it topped the group of world?s 15 largest exporters of services outperforming all our neighbours in Southeast and East Asia and also the US, Canada, Japan and countries of the European Union. During five years ending 2000, our services? exports grew by 23.2% per annum, nearly six times that of all world exports and our market share by 2001 had reached 1.4%, which is double the market share we had in merchandise trade.
Interestingly, this growth has preceded the recognition given to this sector in our Exim or foreign trade policy. The duty-free import facility to this sector was given only last year, which has now been revamped and recast into the ?Served from India? in the new foreign trade policy. This will surely accelerate the growth in services? exports. But the point is that a foreign trade policy can only help at the margin and the main elements of competitiveness in any sector have to be sought in the overall policy and regulatory framework that governs its growth at home. This point was underscored by the commerce minister who said while announcing the policy that ?coherence and consistency among trade and other economic policies is important? and that ?the Exim policy with its limited focus may not be able to meet the objectives?.
The other emerging success story is in automobiles. In only four years from 2000-01 to 2003-04, our exports of cars has gone up more than five times from 23,000 to 1,26,000, and that of two-wheelers has more than doubled to reach 2,65,000. With auto components also on a roll, this sector will soon rival software and ITES as a leading export sector of the country. In contrast, our exporting effort in textiles has been a miserable failure. During the period 1995-2000, while global textile exports grew by an average of 10% per annum, textile and apparel ex-ports from India increased only at the rate of 7% per annum recording a loss in market share.
A feature that is common to both automobiles and software exports is the openness of these sectors to foreign competition and FDI and India is now emerging a sourcing destination in these sectors for global majors. Both in ITES and automobiles, MNCs have made India a hub for their global production and supply chains and this has inspired Indian companies too to aggressively enter the global fray. The BPO story was led by foreign investors, and a similar story is now unfolding in autos, where Hyundai, Suzuki, Ford took the initiative and now Tata Motors and Toyota have joined the bandwagon. In the case of autos, what has helped the cause is a rational import duty structure and falling local taxes in the domestic market.
A similar story could be repeated in a number of other sectors, provided benefits of deregulation, tax reform and openness to foreign competition and players could be spread across. Consider the emphasis placed on boosting farm exports in the new foreign trade policy. This emphasis is right, as studies have established that India has a comparative advantage in a range of crops and horticultural products. But the full potential in this sector cannot be realised by according duty free credit entitlement to exporters or allowing them to import capital goods without having to pay import duties.
What this sector needs is a root-and-branch reform. Thus farmers should be freed of restrictions on marketing imposed by the APMC and other acts, mandi taxes should be abolished, and contract farming should be encouraged. But the biggest push to farm exports can come from allowing FDI in food retailing. Investments will then flow into building a cold chain, grading and sorting practices acceptable in global markets would come into play, and all this along with contract farming for both domestic and foreign markets would drive exports. In areas such as textiles, there is a huge potential provided we can sort out domestic policy glitches including the labour policy. India can raise the bar in exports if our foreign trade policy becomes a multi-ministerial exercise in enhancing the competitiveness of the country as a whole.
The author is an advisor to Ficci. These are his personal views