Just cutting logistics inefficiencies will give a 5% boost
Though there are concerns that new US president Donald Trump will further slow the march of globalisation—the World Trade Organization had, in any case, warned of slower trade growth last year—India’s poor exports showing seems more of its own making. Perhaps why, while India’s share of global trade fell from 1.68% in 2014 to 1.62% in 2015, China saw its exports’ share rise from 12.42% to 13.96%. Even Bangladesh’s share rose from 0.18% to 0.22% and Vietnam’s from 0.8 to 1.15% during this period. Although rising wages and lower productivity are traditionally seen as the culprit, a new report by CII-Maersk says India is losing out due to high indirect costs, which accrue from delays and unreliable transportation—these costs could be as high as 38-47% of the total transportation and logistics cost. Moreover, it points that India’s logistic costs are 14.4% of GDP, as compared with China’s 8%. Even data from World Bank shows India’s exports cost were $1,322 per container in 2014 as compared with $572 for Indonesia and $823 for China.
In other words, if Make-in-India is to succeed, apart from making Indian manufacturing more competitive, India’s creaking infrastructure has to be fixed. CII-Maersk estimate that if India were to reduce its indirect costs by 4%, it would be able to gain 5-8% in exports across sectors. In the case of textiles and garments which account for 4% of the country’s GDP and contribute 5% of India’s total trade, a 10% reduction would save an average of $700 per container, bringing in gains of $3.1 billion. Similarly, for electronics and auto components, the country can gain $1.2 billion and $0.3 billion, respectively, with another billion added from pharma industry once logistics costs are reduced. While creating more infrastructure is an obvious solution, as CII-Maersk points out, there are several bureaucratic processes that can be eased quite easily, with greater digitisation perhaps—regulatory documentation was regarded as the first- or second-most-challenging aspect by those surveyed for its report. The good news here is that, with GST in the offing, its smooth functioning will ease a lot of the friction as far as transporting goods across the country is concerned.