Arshad Shaikh examines the $400 billion worth exports achieved by India in 2021-22 and tries to look at the broader picture vis-à-vis our trade deficit and our history of exports given the state of our economy. What can be done more to boost exports and will we be able sustain the current growth in exports? We should also evaluate our absence from RCEP trade bloc and check why exports benefit the development of our economy.
India set an ambitious target of $400 billion of goods exports and achieved this target for the first time ever. I congratulate our farmers, weavers, Ministry of Micro, Small and Medium Enterprises, manufacturers, exporters for this success. This is a key milestone in our Aatmanirbhar Bharat journey. #LocalGoesGlobal,” tweeted our Prime Minister recently.
Our earlier best was $331 billion in 2018-19. Exports worth $400 billion are indeed a laudable achievement but any economic statistic must be weighed along with other parameters to get the full picture. The first thing that one must check is the imports in the same period, which were $589 billion, leaving a trade deficit of $189 billion. Secondly, we must compare the percentage of GDP that our exports constitute compared to other major economies.
|GDP ($ trillion)||19.4||12.2||3.6||0.68||1.5||2.6|
|Exports as % of GDP||10.2%||19%||47.2%||33.5%||43%||18.7%|
|Share of global exports||10.28%||10.77%||7.63%||1.28%||2.92%||2.19%|
We must also check if this record exports number is sustainable in the long run or if it might turn out to be a “one-time” achievement because of some peculiar factors. Exports are critical to the health of any economy and we must look at the different ways in which exports can be boosted to have a favourable trade deficit and a stable currency.
REASONS FOR THE EXPORT BOOM
One of the main reasons for the outstanding performance of Indian exports this year has been the boost in demand for goods and services in global markets due to a fading pandemic. The surge in exports was fuelled by exports in engineering, petroleum and chemical goods. The other drivers include gems and jewellery, textiles, electronics, cotton, leather, cereals, coffee and jute.
The top five commodities exported and the destination countries are (1) Engineering goods – USA, (2) Petroleum products – UAE, (3) Gems and jewellery – China, (4) Organic and Inorganic chemicals – Bangladesh, and (5) Drugs and pharmaceuticals – Netherlands.
According to the government, various steps were taken to boost exports like the Refund of Duties and Taxes on Exported Products (RoDTEP), Rebate of State and Central Levies and Taxes, Common Digital Platform for Certificate of Origin, increased FTA (Free Trade Agreement) utilisation by exporters, promoting ease of doing business and making districts as hubs of exports. Districts were shortlisted by identifying products suited for exports and then trying to remove any bottlenecks in the export process chain. New markets were identified with the use of MSMEs and start-ups as engines of exports.
THE CRITICAL NATURE OF EXPORTS FOR INDIA
Exports are an important component of the Indian economic growth story and have the potential to create a much-needed boost in employment. In recent decades, countries such as China and South Korea became economic giants by making a tremendous mark in the exports market. India too has a huge opportunity to increase its share in global exports. However, this will require stepping up the competitiveness of its products in the highly competitive global exports market. Rising wages and an aging population in China have reduced its dominance in the labour-intensive manufacturing sector and countries are looking at other options like Vietnam and Bangladesh. India has a huge opportunity to grab some of that share but the competitiveness in labour-intensive sectors has declined over the past decade.
India needs to have a favourable balance of trade (the difference between its imports and exports) as we import about 82% of our oil needs (exceeding $100 billion) that we need to pay in dollars along with other critical imports. If the demand for dollars goes up, the price of the dollar goes up and the rupee becomes weaker. Thus a very high trade deficit (imports exceeding exports) hurts the country’s exchange rate and devalues the local currency leading to inflation and hurting other macro-economic indices.
MISSING THE RCEP BUS
In an article for the Wire (“India’s Export-Led Growth Story Requires a Free Trade Agreement Engine” dated 06 October 2021), Sonali Ranade makes a strong case for India joining the RCEP (the Regional Comprehensive Economic Partnership). Sharing some extremely convincing data about the trade numbers, Ranade says:
“The 15 countries party to the Regional Comprehensive Economic Partnership (RCEP) in Asia account for 37% of our global exports and 42% of our global imports. About 40% of our global trade is with RCEP countries. This results in an annual deficit of about $100 billion; we should seek to lower this deficit. For perspective, the US accounts for 20% of our exports and 8% of our imports. Our trade with the US is only about 10% of our global trade. The US gives us a trade surplus of $22 billion annually, which we don’t appreciate enough. RCEP countries constitute 30% of the global population (not including India) and have a combined GDP of $26.2 trillion, which accounts for 30% of total global output. It is both the world’s largest trading bloc as well as the fastest growing region on the globe.”
Talking about why India did a volte-face on RCEP, Ranade suggests, “Be it demonetization, GST or the digitization of payment systems, along with Aadhar enabled surveillance; all these measures were designed to force commerce and consumers to migrate from the informal to the formal sector, where tycoons dominate the playing field.”
It seems that our policy is directed to strengthen the formal sector at the cost of the informal sector. This has squeezed employment opportunities and consequently affected exporters who are primarily in the MSME and informal sector that is made of labour-intensive industries.
THINGS TO DO
There is no debate over the fact that India needs to redouble its efforts in improving on the exports-horizon. Extra efforts will have to be channelised to boost competitiveness and helping the labour-intensive industries towards greater exports. An important component of the export industry is the level of logistics as it is directly linked to the transport, storage and final quality of the product exported across the country’s borders.
Improving logistics has a direct bearing on the time taken and costs involved for exporting and are critical for any country being a dominant player in the exports industry. Many feel that India’s labour laws are not market-friendly and hence we are not in a position to achieve economies of scale in the international markets.
Entrepreneurs, if given more leverage in adopting a hire-tire and fire policy, will help them reduce costs and through greater labour productivity. This is highly debatable from the point of view of welfare and fundamental rights but given the political climate in our country, there is very little scope for any organised opposition to these pro-free-market policies.
The same approach is being applied to land acquisition to help the manufacturing sector. India must look for ways and means to reduce trade barriers at the level of bilateral agreements as well as multi-lateral trade blocs. There is a global trend towards protectionism and increasing automation using Artificial Intelligence and Robotics.
We also need to boost our technical expertise in manufacturing so that we can compete with the best in terms of cutting edge technologies. One may conclude by saying that exports remains the key to India becoming a $5 trillion economy.