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Exports: States Hold The Baton, Must Usher In Reforms

Geography drives exports as much as commerce. What works for landlocked states may not work for the coastal states. The state governments have a profound, more visible act to perform. Their actions impact the business environment up and close

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The rebound of the economy has been boosted by better-than-expected exports numbers. We must now set higher goals. An enabling ecosystem can propel exports beyond $1trillion over the next five years. 

Our exporters engage in a highly competitive market, (western Europe, USA), serve quality conscious customers. Under a better ecosystem they will conquer several other markets. India needs to develop an ecosystem that enhances competitiveness, powers scale, fortifies moats.  

*Constricted Export Container. Both Opportunity and Threat. Glass Half Full  

A Crux study, ‘Export: Beyond Home’ is insightful. Merely eight products constitute over 60 per cent of the export shipment. Engineering goods alone account for a fourth. The ‘service’ exports are even more concentrated. The IT/ITES sector contributes more than half the services exports.  

We need to ‘build’ on the success; equally watch our flanks. India needs to rebalance its export basket, move up the value chain, more pertinently optimise opportunities. As an example, from agricultural to processed food, coding to digital solution etc.  

The Crux study highlights inherent challenges. We are years away from becoming (if ever) the ‘factory’ of the world. The export folio needs diversification, the landscape needs to be widened. As much as 80 per cent of the largest 500 corporates ‘fail’ to export. Only a handful of these ‘large’ corporates have global scale, competitiveness. Even those serving niche markets haven’t built unsurmountable moats.  

They need help.  

*Govt. must ‘Bat & Brand’ on the Global Pitch, Ink Favourable Trade Agreements  

The Centre has a role to play. It has demonstrated intent (budgetary allocation), and follow up by investing in, strengthening the export drivers and multipliers. It must boost export infrastructure, back it by robust laws and efficient financial institutions. It must incentivise R&D.  

The PLI schemes deepen supply. The interest equalisation scheme will pay dividends. Yet insufficient. The commerce ministry should strike favourable trade deals, anchored around our competitive strengths. We need to create linkages with the supply chain, enhance relationships with suppliers to get better terms for our importers. Intermediaries (quality, price) are often the key to exporters’ competitiveness. Benefits will trickle down to the domestic markets too. 

The value deprecating, resource sapping regulatory framework nullifies India’s advantage of ‘low cost-low skilled’, labour-intensive sectors. Apparel, leather, and footwear sectors are an ‘easy and lucrative’ market and job ‘factories’. They empower demography, propel domestic consumption. 

*States Must Usher in Reforms  

There is often a misconception that export driven activities are the responsibilities of the central government. Geography drives export as much as commerce. What works for landlocked states may not work for the coastal states. The state governments have a profound, more visible act to perform. Their actions impact the business environment up and close. Administrative reforms are a prerequisite to better contracts, ease of doing business and nurturing the ecosystem. Some others are low hanging-high multipliers. Amongst them, tax sops, interest subvention schemes, access to liquidity etc. Lack of scale, skill and infrastructure robs us of the benefits of low-cost labour.    

Some states have made progress; by digitising and standardising processes, removing overlapping compliances. Every state must develop a targeted and focused strategy that prioritises high potential industries and strategic markets to optimise impact. 

We must aim to be several congruent exporting markets collaborating with each of these ‘production’ points (states). The ‘One Station-One Product’ will feed in the initiative of developing ‘Districts as Export Hubs’, expanding and diversifying the export basket. The benefits will trickle down to the domestic market, particularly benefitting the MSME sector. 

They now hold the baton.  

*Aping the China model is neither Doable nor Desirable. Must Play to our Strengths  

If we play to our strengths, many states can effectively substitute Bangladesh, Vietnam, and other smaller competitors. 

The Centre needs to change the optics and signal accordingly. We are on the right trajectory and have covered several grounds. The IT industry has diligently built a robust platform led largely by the impregnable moat of ‘low cost, value enhancing delivery model’. It has enhanced value; earned respect, now exports more than the oil export of Saudi Arabia. The larger corporates need to collaborate with (pooling in) and support the smaller and less competitive entities. This will increase their competitiveness, enhance the export pie.  

On the marketing and customer side, India has challenges too. Global trade is not a monolith, but several regional blocks. India has not yet forged political relationship, nor fostered an economic bond with our neighbours. They themselves could be big markets. Most import from China, and far. India has the political capital, advantages of scale, skill, structure, and ‘stability’ to create a collaborative environment.  We can emerge as preferred trade partners on the one hand and enable collaboration to create a cluster for the globe. It wards off competitors, keeps peace, and reduces the defence budget. 

The world is promoting trade resilience through regional integration i.e., RCEP, African Continental, Free Trade Area. India’s bitter experience of the past makes it hesitant to amalgamate. However, we must row on for the larger goal, for bigger gains. Business is about give and take, many opportunities, several possibilities. A growth economy and a promising demography like India has much to offer, and more importantly much more to gain. The bilateral trade deal with Australia must give us confidence and credibility.  

*Deglobalising World, Huddling into Bipolarity  

The event of the last three years presents a challenging scenario. The world is breaking up, not consolidating. The global order has been punctuated by wars, conflicts, and the pandemic. In a bipolar world, most others will choose either the yuan or the dollar.   

India could create an opportunity to lead a neutral but narrowing and ‘weak’ third block. Additionally, the leadership must guide us to create a space to trade with ‘friendly’ economies.  

Exports play a crucial role in revenue generation, job creation and growth; counterbalance imports, reducing the trade deficit. Additionally, it creates the environment, enhances reputation to attract investment. On the domestic front exports offer lakhs of small business access to a wider global market. It increases the market size. It intangibly impacts several other indicators meaningfully. 

Our entrepreneurs can take on the world. They deservingly need enablers. 

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.


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Magazine 21 May 2022 imports exports

Dr. Vikas Singh

The author is a senior economist, columnist, author and a votary of inclusive development

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