Amitabh Kant
A quantum jump in exports presents a tremendous opportunity for India. Nearly two-thirds of the world’s production takes place in global value chains. Integrating with these supply chains will not only bring welfare gains, they will also increase efficiency and drive growth. Conditions are ripe for India to enhance exports to boost economic growth. India’s economy cannot survive without exports. In 2017-18, exports of goods and services contributed about 12% of India’s GDP. In contrast, exports made up over 42% of South Korea’s GDP. Similarly, in 2006, when China was growing at nearly 13%, the share of exports in GDP was more than 37%. For India to achieve double digit growth, exports will be a crucial part of the strategy.
Although India’s exports have been rising of late, there remains ample room for further growth. In 2017-18, exports of goods and services grew by nearly 13%. Exports grew by over 20% in May 2018 compared to May 2017. It seems as if the dip in exports witnessed over the last five years may be behind us. This is an opportune time to shift gears and pursue exports more aggressively, building on the government’s existing initiatives.
Several measures, such as ensuring exporters receive GST refunds for raw materials in a timely manner, are undoubtedly critical to raising exports in the short term. At the same time, higher exports must be sustained in the medium and long term. This will not be possible if we don’t remove the barriers to firms’ scaling up.
Larger firms not only witness lower per-unit costs, they also benefit from global competition that drives them to continuously increase productivity levels. We don’t need to look far from home to see this in practice. India’s automotive sector has been successful in large part due to the ability of domestic firms to scale up.
Promoting clusters and zones of production will facilitate firms becoming larger. The government is focusing on manufacturing clusters, especially around coastal areas so that exports can be dispatched faster given their proximity to ports. Cluster-based manufacturing will allow firms to save on costs while the location close to coastal areas will save transportation cost and time.
In 2010-11, 72% of India’s manufacturing workforce was employed in firms with less than 20 workers each. However, they contributed less than 12% of manufacturing output. Removing barriers faced by micro, small and medium firms (MSMEs) with respect to accessing capital, hiring workers and acquiring land will help these firms expand and increase productivity.
In 2017, India ranked 146th out of 190 economies on the World Bank’s “trading across borders” component of doing business, which measures the time and cost (excluding tariffs) associated with documentary and border compliance and domestic transport procedures for trading goods. Indian exporters on average took nearly four times the time taken by Chinese exporters to comply with border compliance requirements in 2017.
We can reduce border and port turnaround times and lower the cost of trading through a number of measures. First, we need to focus on digitisation across ports. Last mile online access and moving processes completely online will help cut down compliance times drastically. Second, we should ensure that major non-Electronic Data Interchange (EDI) ports are converted to EDI ports urgently for faster clearances. The EDI message exchange system facilitates documentation related activities such as authorisations across departments.
Third, we must ensure policy consistency to reduce informational barriers. The Central Board of Excise and Customs (CBEC) issued about 173 tariff-related notifications between April 1, 2015 and June 27, 2018. The large number of additional notifications increases the complexity of trade rules.
States govern many issues related to ease of doing business. For example, they grant firms electricity and water connections. They also govern property registration. Thus, states play an important role in helping firms operate smoothly. Studies have found Indian states that engage in foreign and interstate trade are richer than non-exporting states. Thus, states also need to play a major role in boosting exports by easing the business environment, enhancing digitisation and strengthening infrastructure and connectivity.
There has been a growing recognition of standards as a driver of trade and technical development. The commerce and industry ministry has been promoting use of international standards by Indian exporters, recently releasing a National Strategy for Standardisation. Adjusting to these standards will help firms tap international markets. In certain sectors – such as agriculture and food processing – the lack of compliance with standards has prevented exporters from penetrating markets such as the US, EU and Japan. Conformity with sanitary and phytosanitary measures will help Indian food products become globally acceptable.
Global standards are continually evolving. In addition to compliance by Indian manufacturing firms, identification of specific standards and regulations across different sectors by industry bodies and relevant ministries will help India participate in global value chains. Indian firms should ensure they stay abreast of international developments in the space of standards and technical regulations. Conforming to changes in a timely manner plays a prime role in shaping market access of Indian goods and services.
While the rest of the world is looking inwards, India needs to take a contrarian view and focus on exports by targeting large global markets. To drive its own development with vigour India needs to boost exports through promoting size and scale, ease the business environment and adjust to global standards. These measures will help India integrate with global value chains and achieve robust and sustained economic growth.
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