Enable export success to boost UP’s economic trajectory
4 min read 21 Sep 2022, 11:15 PM ISTThe state’s Mission 1 Trillion could count on a labour wage advantage to help create an export boom
PremiumUttar Pradesh (UP) is only one of India’s 28 states, but it is home to approximately 230 million people, which would make it the world’s fifth largest country by population if it happened to be a sovereign state. As it is also one of the few Indian states now left with a fertility rate above the replacement rate, its population will continue to increase for some time to come. Although governance in UP has improved in recent times, decades of mismanagement, both pre- and post-independence, have left this large and growing population among the poorest in India. Per capita income in UP is lower than all other Indian states except its large eastern neighbour, Bihar.
‘Mission 1 Trillion’, an initiative of the Uttar Pradesh government led by Chief Minister Yogi Adityanath that aims to place the state’s economy on a sustainable path to reach $1 trillion in five years, is an opportunity to change the state’s prospects and those of its residents for the better.
Economic growth has proven itself to be by far the most powerful and sustainable driver of poverty reduction and improvement in living standards across the world, including in India, and Mission 1 Trillion has the potential to transform UP.
Where will the state’s economic growth come from?: In the past 75 years, no low-income country has been able to grow fast for sustained periods of time without relying heavily on exports. The best known success stories of the past century or so—namely, Japan, Taiwan, South Korea and China more recently—all relied on robust exports to provide an engine of growth for their domestic economy. What often goes under- appreciated is that even India’s growth story of the past three decades was powered to a large extent by export success, predominantly in the sectors of information technology services and high-skill manufacturing. In recognition of this fact, the government of India has also set very ambitious and exciting targets for manufacturing and service exports.
Why are exports so important?: The most obvious function of exports is to bring in revenue from richer and larger markets elsewhere in the world. This is highly important, especially given that India on a per capita basis is still very poor in comparison with middle- and high-income countries, and therefore represents a much smaller market for Indian industry than it would be if the country’s average income had been higher.
But exports also serve as a signal that our institutional and industrial set-up is competitive in global markets.
We can think of export performance and growth as being the equivalent of competitive exams. These tests in themselves don’t actually improve our learning levels. We have to prepare for them; we must pick subjects aligned with our strengths, study and practice hard, and these exams tell us whether we are succeeding or failing.
Similarly, export performance tells us whether our preparation—from our choice of focal categories and ease of doing local business to the quality of entrepreneurship and infrastructure—is good enough, and thus whether we are succeeding or failing in the achievement of our export goals.
Learning growth happens in the preparation, not in the exam result. Similarly, it is the improvement in competitiveness—the ‘right preparation’—for exports that drives economic activity and growth.
So, how can UP ‘prepare’ to succeed in exports?: The most important thing to do is to pick areas that align with our strengths. The principal strength of Uttar Pradesh is its people. We have a large labour force, and wages in UP are very competitive with wages in countries where labour-intensive industries have been highly successful. Every low-income country that grew rich over time took advantage of this strength at the beginning of its journey. This was done by rolling out the red carpet for investments by labour-intensive industries and by facilitating the operation of large-scale factories and manufacturing clusters through the provision of a supportive regulatory, administrative and infrastructure environment.
As it happens, historically, our regulatory environment has been almost hostile towards manufacturing. Any consultation with labour-intensive industries in India will reveal a host of issues that factories have to consistently deal with when it comes to the government or society interface, running from administrative red tape to local political issues. Equivalent stories about China and Bangladesh mostly reveal the opposite; factory space allotments, infrastructure access or permits and logistical clearances, etc, are reported to take hours instead of months in those countries. Having set economic and export success as a political priority for UP, the state must resolve all such issues as they crop up.
These prescriptions have been known for a long time, but UP also has the ability to deliver on them. The chief minister is on a strong wicket politically, shares a good working relationship with the Centre and is keen on UP’s rapid economic growth.
Mission 1 Trillion is the right goal to take on. The way to achieve this result is to reduce the scope of the problem. Instead of trying to lower regulatory, administrative and infrastructure hurdles across all of UP, we must pick a few large clusters where we can act to ensure that conditions are either equivalent to or better than those in rival countries like China, Vietnam or Bangladesh. We must deliver on this for UP—and by extension India—to succeed.
Rahul Ahluwalia is director, Foundation for Economic Development, a Delhi-based not-for-profit organization
