India’s exports—now for long on a continuous slippery slope—need a structural change in the ecosystem
As a sterile debate sporadically rages on the feasibility as much as the desirability of the country’s export-led economic growth, the continuing contraction of India’s exports has typically elicited weather-beaten demand for some quick-fixes such as fiscal incentives and interest rate subventions. Even if economic growth may not primarily be export-driven, exports signify a country’s competitiveness across the global value chain of efficiency, quality and pricing of its products and services. With an export turnover of $310 billion in 2014-15, India, the world’s third-largest economy, ranked 19th among all exporting countries, achieving a share of less than 2% of world exports (vis-a-vis China’s in excess of 11%). Sixty years ago, India’s share in world exports was higher than China’s; by 2013, India’s exports were less than 15% of China’s.
Indian export basket includes around 60% of manufactured goods (in addition to 20% petroleum, oil and lubricants products, 15% agricultural and allied products, 5% others), within which there has fortuitously been a perceptible shift from traditional labour-intensive categories such as textiles and leather to engineering products—for example, iron and steel, auto parts, automobiles, capital goods. Even so, India has remained only a peripheral player in industrial sectors which command a lion’s share in global trade. Its export thrust has remained largely confined to sectors which constitute a small segment, accounting for less than one-fourth of global exports.
World exports could broadly be put into five categories.
Energy and resource-intensive goods such as fuels and mining products, iron and steel, paper, etc, aggregating about 30% of the $17.3 trillion worth of total global exports in 2012;
Sunrise industrial goods largely in the electronics and telecom sectors, accounting for about 25%;
Automotive products, machinery, chemicals, pharmaceuticals, etc, approximating another 25%;
Agricultural products, 10%;
Labour-intensive tradeables such as textiles, clothing, leather goods and miscellaneous manufactures, another 10%.
The share of developing countries in world trade doubled from 16% in 1991 to 32% in 2011 (World Bank: Global Economic Prospects, 2013). Notwithstanding all talk of “de-coupling”, developing countries still rely on economic health of advanced economies. India’s share of manufactures exports in affluent OECD markets declined from 58% to 41% during 2000-10. It could secure 5% share in world textile exports in 2012, and 2% in clothing (against China’s 33% and 38%, respectively); it has but a negligible share in electronic data processing and office equipment, likewise in integrated circuits and electronic components versus China’s impressive 41% and 17%.
India’s exports of $10 billion of automotive products represented 0.8% share in this sector; China’s share was over four times larger. India could muster just 11% share in world tea exports in 2012, down from 43% share in 1958-60, now trailing behind Sri Lanka (share 22%), China (16%), Kenya (14%); for garments too, with exports of $13 billion in overall global garment exports aggregating $409 billion in 2012, India trailed far behind China ($148 billion), Bangladesh ($22 billion), Vietnam ($15.3 billion).
India’s 2015-16 $325 billion export target remained hugely elusive; its exports in the year trailed far behind previous year’s level of $310 billion, with merchandise exports during April-December 2015 declining by 18%, to $196.6 billion, compared to those in corresponding nine months of the previous year; imports contracted 15.9%, to $295.8 billion. India’s non-oil exports in H1-2015 fell 9% compared to the corresponding period last year; engineering goods exports were down 12%, from $34.5 billion to $30.2 billion; textiles exports, excluding apparel, contracted 4%, and leathers 10%. Agricultural and processed food products exports fell 10% to $38.6 billion in 2014-15. While basmati rice demand declined from Iran and the US, Bangladesh and Pakistan now buy oilmeals from South America, not from India. Currency fluctuations vis-a-vis Brazil, for example, eroded India’s price competitiveness in soybean, sugar, buffalo meat, etc.
The country has underperformed even given weakening global trade growth. While India’s exports slumped, for example, during H2-2015, those in Bangladesh rose year-on-year by 8% and Vietnam’s by over 9%. Albeit external factors like sluggish global demand and falling commodity prices’ impact on foreign trade, the crux of export promotion remains the supply side. For want of domestic hardware manufacturing capability towards matching the country’s burgeoning demand for products such as computer hardware, telecom equipment and aircraft alone accounted, until lately, for more than three-fourths of the total manufacturing trade deficit.
For a breakthrough in industrial manufacturing—essential also for an export jump—India will need to craft some unique USPs with a ceaseless focus on a few items amenable to the country’s comparative advantage in terms of cost, quality, supply lines and logistics. It also needs to identify product sectors conforming to what Carlos Ghosn, the Renault-Nissan CEO, lauded India’s “austere engineering”. With fully-loaded manufacturing wages averaging $1.80 per hour in Thailand, $0.49 in Vietnam, $0.38 in Indonesia, $0.35 in Cambodia, several industrialised countries have attracted a significant transfer of work in labour-intensive products. McKinsey (2011) found that several global clothing firms wanting to shift their sourcing from China favoured new destinations like Bangladesh, Vietnam, Indonesia and Cambodia, not India.
The country’s trade policy-makers have remained addicted to shibboleths like small-scale, sops and stimulus. Exports are seldom construed as a national quest generating an environment of competition to excel in quality, reliability, productivity and customer care. Investment in R&D has been low, in addition to underinvestment in physical and human capital. Much touted changes in labour laws remain unrealised. It is often that economies of scale are stifled, thereby eroding price-competitiveness.
How do people do their business in a country, when, as for many decades, for example, World Bank’s Doing Business ranks India almost at the bottom? Similarly, the Global Competitiveness Report, 2013, shows India slipping to 60th rank—31 places below China. Amidst hype on the country’s “demographic dividend”, educated and trained workers are but few; skilled tradesmen with volitional quality consciousness still fewer. Perceptions matter.
Transport and logistics costs more often pose a barrier at least as large, and frequently larger than tariffs. Not merely costs, timelines of delivery are affected, adding frozen capital impact. Notwithstanding debilitating transaction costs remaining on radar for decades, trade documentation, procedures and processes continue to be labyrinthine, complex, costly, time-consuming. Despite rampant crackle of ideas and initiatives like Customs Electronic Commerce Gateway, Risk Management System, On-site Post-Clearance Audit, 24X7 operations, etc, there is little sustained change towards helpfulness and efficiency. Given modern aids such as Electronic Data Interchange (EDI) for prior filing of documents for regulatory clearances and logistics operations, why must India’s exports and imports continue to dwell at gateways beyond, say, a maximum of 24 hours?
Much has been expected of the Narendra Modi government to create a climate of confidence for entrepreneurs’ animal spirits to soar, drastically and urgently, prune the monstrous bureaucracy for realising avowed “Minimum Government, Maximum Governance”, rationalise the panoply of laws and rules, very many of them archaic and retrograde, free the labour laws of known rigidities, generate quality-consciousness and commitment to “zero defect”, and make India a really single market. In Prime Minister Modi’s own words, “men, machines and money must work together,” generating a fervour for “skill, scale and speed.”
The author is senior fellow, Asian Institute of Transport Development, and was the first MD of the Container Corporation of India Ltd. Views are personal