Why India needs a targeted export strategy

With India consistently failing to remove its trade deficits year-over-year, the growth prospects are getting restrained even after bold economic reforms

Gyanesh Chaudhary
Updated: Aug 12, 2019 04:00:50 PM UTC
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Image: Shutterstock

With India consistently failing to remove its trade deficits year-over-year, its growth prospects are restrained even after bold economic reforms. India’s import expenses, far outweighing export (in FY 18-19 import expense $514.44 billion, exports $303 billion), have kept the deficit in play. In the last financial year, deficit reached a record high of $176 billion, limiting growth and keeping India’s export share globally to only 1.65 percent. In such a scenario, the existing export strategy that actually encourages imports in the name of promoting exports needs to be modified.

What India presently needs is a targeted export strategy that prioritises promising industries and products, which have the potential to achieve double-digit export growth. In this rapidly changing trade landscape, an effective export strategy can build global value chains and new free trade agreements, making way to mega trade agreements. India must follow a multi-faceted approach, focusing on expanding domestic production and targeting the right products in top importing nations, to activate and utilise export-led growth.

Focusing on export pays off
There’s a clear reason why developed and emerging economies are focusing on effective export-led growth strategy.

China: China has encompassed a significant portion of the global supplier market. Its exports rose 7.1 percent year-on-year in 2018. Higher export tax rebates, manufacturing capacity building, encouraging competition (top runner program), offering export incentives, presenting financial backing to encourage business growth and demand creation has helped China maintain a stable economic growth through increasing export capabilities.

Vietnam: Vietnam’s rapid growth can be credited to its export-led growth model. As result, Vietnam’s export turnover has reached from $1 billion in 1995 to ~$200 billion in 2018. Signing on export oriented agreements like- Free trade, CPTPP, EVFTA and taking advantage of US-China trade war (Vietnam accessed US$19 billion FDI in 2018, growing its economy by 7 percent Y-o-Y) has helped Vietnam to become a manufacturing hub, enhancing its exports.

South Korea: Export-led growth strategy has helped South Korea claim the second-highest Human Development Index score in Asia. Rapid advances in information technology, focus on lucrative industries, skill development have helped South Korea to dramatically reduce the costs of manufacturing while improving performance, leading to $44 billion export turnover in Q2 2019 from $14 million in 1966.

These examples testify the benefits of focusing and supporting export capacities. And fortunately, India has already identified promising industries like solar that can serve as the right candidate for building export capacities.

Modifying the export strategy
India is facing headwinds from the ongoing global trade conflicts at a time when other countries are capitalising on changing supply chains. The country was eager to receive support in export from the government through the latest Budget 2019. Focus on prioritisation of promising industries, augmenting flow of credit, outright exemption from GST, higher tax deduction for R&D, getting interest equalisation facility to agri exports were needed to further boost exports. However, unfortunately, the recent budget skipped emphasising these issues.

I believe that we need to focus on export-led growth to increase productivity, access international markets, facilitate technological upgradation, industrial growth, create jobs, and bring in revenue. India can export 30 percent of its GDP, from current performance of 10 percent. In such a scenario, focusing on manufacturing and promoting access to countries with high import requirement can build the system that can power and protect India’s economy.

Manufacturing can be the saviour
Manufacturing labour cost in India is considerably lower than in the US and China. However, India’s manufacturing share in GDP is still just 16 percent. Focusing on the manufacturing sector promises to create jobs (100 million new jobs by 2025), bring foreign investment, improve industrial structures, improve R&D structures, reduce forex outflow, and increase revenue generation, which can feed progress. However, the right sectors must be identified.

The export strategy has to identify products with the highest demand in different top importing nations. Additional analyses should also include: India’s total exported value of the specific products, world export shares, India’s rank in the list of exporters for these specific items and the competition. These filters will help map a country-wise market demand trend for exports, and give India a clear vision as to which products or sectors have to be prioritised to enhance exports.

After identifying these products, taking up non-tariff barriers through agreements and trade relations with the governments of top importing countries would help. Additionally, effective marketing strategies, brand building for specific products and sectors in global markets would help India earn more revenue and facilitate growth.

The author is the MD and CEO of Vikram Solar

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