India’s latest merchandise export figures are out. On the face of it, the numbers look upbeat, with shipments hitting a new peak of $331 billion in 2018-19. However, this does not mean everything is hunky dory.
A review of a longer period shows that exports have been stagnant or in decline over an extended period. The figure was $306 billion in 2011-12, not far below what was recorded last fiscal year. The number was $303.5 billion in 2017-18.
The economy has been growing, so, as a proportion of gross domestic product (GDP), exports have a long way to go before a recovery can be proclaimed on this front. Sure, world trade overall has been hit hard in recent years by anti-globalization forces, but India still needs to up its game. Every major story of economic emergence so far has been underpinned by rising global competitiveness. For this, an ability to make high-quality goods at low cost is just as important as an edge in, say, IT services.
The country had prepared a strategy paper in 2013-14 to drive merchandise exports to $500 billion in three years. Instead of outward shipments, imports reached that number last year, clocking in at $507.4 billion, which has resulted in a record trade deficit of $176.4 billion. The government’s target for goods and services exports, set in 2015, was to double that year’s figure to $900 billion by 2020. Again, this goal is likely to prove elusive.
Unless trends shift, the sobering truth is that India’s share of global exports will not go beyond 2% (it is less than that at present). In comparison, China already accounts for nearly 13% of the world pie, which gives Beijing a significant voice in all trade matters.
Internally, to some extent, India’s approach to trade remains a leftover of the pre-liberalization worldview, by which a jumble of specific incentives and policy measures for various sectors were expected to earn the foreign exchange needed to pay our foreign bills. An excessive focus on domestic demand and must-haves for imports had reduced the flexibility of our responses to world markets, the effects of which have proven too heavy to shake off. Even now, a credit subvention tweak here or an export prop there passes for policy action, even as exporters have found their working capital squeezed by tax-refund delays ever since the goods and services tax came into force.
Trade barriers erected by other countries are a dampener, but raising our own tariffs is not the best response. Global market exposure, after all, pushes local producers to get in shape. Nor should an adverse global scenario serve as an excuse to throw up our hands over India’s dismal export performance.
So long as trade remains a win-win activity, it represents an opportunity. Vietnam and Bangladesh, for instance, have made the most of a chance to fill in spaces vacated by countries such as China in sectors like textile and garments. Also, there is no saying when the myopia of trade wars ends and economic sense returns, in which case India must not miss the boat.
We need a broad plan to address all underlying factors that keep Indian products from being world-beaters. A stable economy would help keep the rupee at an apt level, but the basic emphasis would have to be on setting our output apart, be it in terms of cost, quality or special appeal. Until reforms make that happen, we might as well forget about our lofty targets.