The measures, announced last week, include replacing a WTO-non-compliant duty refund scheme with a compliant one and, with a Rs 10,000 crore higher outlay, there are measures to ensure a higher amount of export credit—around Rs 36,000 crore—is available at lower interest rates.
The government has done well to come out with a series of initiatives to boost India’s flagging exports; between FY14 and FY19, India’s exports grew at less than 1% per annum. The measures, announced last week, include replacing a WTO-non-compliant duty refund scheme with a compliant one and, with a Rs 10,000 crore higher outlay, there are measures to ensure a higher amount of export credit—around Rs 36,000 crore—is available at lower interest rates. Other measures include ways to reduce the processing time at airports and ports, etc. While a weakening rupee should help India’s $330-bn exports grow, it is not clear how much these moves will help boost growth to reasonable levels in even the medium term, much less be able to reach commerce minister Piyush Goyal’s $1-trn-stretch target.
Though Goyal was pilloried for his recent slip about Einstein having discovered gravity, he was right when he said that looking at the past didn’t necessarily help predict how the future would unfold. Between 1990 and 2018, while India’s exports grew just 18 times, for instance, Vietnam’s rose 102 times, as a result of which, its exports are 75% those of India today; these were a mere 6% in 1960. In other words, it is not how fast global trade is growing that is critical, what matters is seizing the opportunities that global trade throws up; Vietnam didn’t just catch the textiles boom, it also rode the electronics boom, and the possibilities that got thrown up with rising US-China tensions. Seizing the opportunities, however, requires an almost complete retooling of India’s manufacturing/regulations since no country can become an export powerhouse unless its local production is globally competitive; cheaper export credit, for instance, is a good thing, but it cannot make an uncompetitive product into a world-beating one. In which case, India needs to fix its infrastructure deficit, high corporate tax rates, high-cost labour and land, and reduce costs associated with bureaucratic red tape, convoluted decision-making, etc.
It is also critical that various sectoral distortions be corrected; so, for instance, India’s tax policies in textiles are biased against man-made fibres whereas global demand is for such materials, and not for cotton, which is the mainstay of India’s industry. Other sectoral policies also need to be fixed. While India’s policies on mobile phones have so far attracted mostly small players, the bulk of the $300bn global export market for smart-phones—60% of this takes place from out of China—is serviced by four of five large companies, like Apple and Samsung; it is difficult to see how India’s exports of smart-phones can take off unless India is part of the global value chains of these firms. There is, so far, little serious attempt to ensure that firms like Samsung and Apple shift their production bases to India; the boom in India’s automobile exports after Suzuki’s entry ensured its entire vendor-base moved to India, though, should have made clear just how important being part of global value chains is. Around 70-75% of global trade, in any case, takes place through value chains run by MNCs across the world. Agriculture is another big area of export potential, but harnessing this requires moving away from today’s stop-go policies towards agriculture exports—normally based on how local prices are faring—as well as those like MSPs that distort markets. In the case of minerals, where there is big exports potential, similarly, India needs to both get its royalty-cum-tax regime right as well ensure all permissions—including licensing fresh mines and all environmental clearances—are given at the earliest. Only a policy that aims at making a country more competitive can deliver top-class exports growth; an exports-policy makes little sense on its own.