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BW Businessworld

Have Exports Turned The Corner?

Latest export figures have led to much cheer and optimism. However, policy hurdles still remain a stumbling block

Photo Credit : Shutterstock

One area where the narendra Modi regime has been confronted with harsh reality is exports. Till about August 2016, exports from India had declined continually for 18 months. There has been some relief post August with exports staring a modest recovery month after month. However, it is February 2017 that has led to both hope and cheer. After what seemed like ages, exports grew by a healthy 17.5 per cent. Early estimates now indicate that fiscal 2016-17 as a whole will register a positive growth, albeit a very modest one. This uptick is largely because of the unusually rapid and high growth rates in engineering goods, particularly to south East Asian nations. In February, engineering exports to this region grew by more than 200 per cent.

So, can we then conclude that Indian exports are back on track? Not by a long shot. By 2013, the UPA government was confident that exports from India would breach the $300 billion mark. But that is when the house of cards came tumbling down. The growth rate of the Indian economy as a whole started declining. And of course, exports declined in actual dollar terms. Four years after a confident estimate of $300 billion, the figure would just about cross $250 billion in 2017. Still, one can argue that the performance is not really all that bad given tough global conditions. But that would be glossing over both reality and deep rooted policy failures.

The Economic Survey highlights the policy constraints (failures) in a very significant manner. But before that, let us go back to the 2014 Lok Sabha campaign when Narendra Modi promised a rejuvenation and transformation of the Indian economy, there were many slogans and acronyms used by him that became popular. One among them was the ‘five F’ principle. The five F, according to Modi, stands for farm to fibre to fabric to fashion to foreign.

As a vision, this was indeed inspirational, linking cotton farms to foreign retail giants in a process of seamless integration that would benefit everybody. After all, India had been traditionally known and globally popular for its textile exports.

The Survey also highlighted the tremendous potential of the sector (along with footwear) to not just trigger a sustained growth in exports, but also large scale employment opportunities in the country. In terms of job creation, the reasons are immediately and painfully apparent. The Survey says: “The data shows that the apparel sector is the most labour-intensive, followed by footwear. Apparels are 80-fold more labour-intensive than autos and 240-fold more jobs than steel. The comparable numbers for leather goods are 33 and 100, respectively. Note that these attributes apply to apparel not the textile sector and to leather goods and footwear not necessarily to tanning. Drawing upon the World Bank employment elasticities, we estimate that rapid export growth could create half a million jobs annually.”

However, the Survey admits that the Indian economy is unable to take advantage of this unique opportunity. “India has an opportunity to promote apparel, leather and footwear sectors because of rising wage levels in China that has resulted in China stabilising or losing market share in these products. India is well positioned to take advantage of China’s deteriorating competitiveness because wage costs in most Indian states are significantly lower than in China. Alas, this is not happening, or at least, not enough. The space vacated by China is fast being taken over by Bangladesh and Vietnam in case of apparels; Vietnam and Indonesia in case of leather and footwear…. Indian apparel and leather firms are relocating to Bangladesh, Vietnam, Myanmar, and even Ethiopia. The window of opportunity is narrowing and India needs to act fast if it is to regain competitiveness and market share in these sectors. Hence, the urgency.”

But where is the urgency? The reality is that apparel and textile exports from India might already have lost the race. According to a report filed by the wire agency PTI on 17 March, the country’s textiles exports dipped by about 4.5 per cent to $26 billion during April-December of this financial year. “The exports of textiles during 2016-17 (April-December) were $26 billion compared to $27.2 billion during 2015-16 (April-December),” Minister of State for Textiles Ajay Tamta said in a written reply to the Rajya Sabha. The fact is, exports from tiny countries like Vietnam and Bangladesh now exceed those from India. And the embarrassing fact is that despite higher wages, overall textile exports from China still touch $200 billion. More than 10 years ago, textile exports from Bangladesh were a fraction of that from India. But policy makers there have displayed admirable far sightedness to stitch up a big success story.

Arguably the biggest policy hurdle is the rigid nature of labour laws in the country. While some state governments have shown an element of flexibility, labour laws still dictate that a factory owner simply cannot let go of workers without prior government approval. Across the world, factories dedicated for exports enjoy tremendous resilience when it comes to hiring and firing workers or taking them on contractual basis depending on orders from overseas clients. Sure, there is exploitation. But a vast majority of workers prefer work over unemployment. The total workforce in India is about 500 million. Of this, only about 10 per cent are in the organised sector and enjoy the protections provided by labour laws. The balance 90 per cent are anyway at the mercy of market forces and capricious employers. For them, flexible labour laws could be a boon. Global giants such as Walmart, Target, Tesco, Adidas, Nike and a host of others would not hesitate to outsource manufacturing operations to India if labour laws were more flexible. And yet they remain the same.

The other big reform that is still a work-in-progress is the so-called ease of doing business. Ask any exporter and one will get to hear horror stories of the red tape and bureaucratic apathy as well as greedy hostility they encounter while pursuing their trade. At one time, an exporter had to tackle more than 80 forms and documents. The government claims that it has brought the number down to about eight now. But not enough has been done because one simply doesn’t see any major rise in manufacturing investments. Clearly, this will be a huge challenge not just for exports, but also for the ambitious ‘Make in India’ mission as both are inextricably linked.

Perhaps the only real good news on this front is the imminent arrival of the GST regime. As Commerce Minister Nirmala Sitharaman says, “GST gives a feeling that market in India is one now and there are no barriers between regions or provinces. Even within the country, the value chains — which will get integrated — will have a simpler and straightforward flow (of goods) and therefore, it should make exports more competitive rather than expensive.”