Manufacturing, export growth a must to bring down CAD: Exim Bank chief.

TCA Ranganathan, the chairman and managing director of Export-Import Bank of India, has said an urgent thrust on manufacturing and high technology capital goods is a must if India is to reduce its hefty current account deficit (CAD). India’s imports of such goods is at a staggering $90 billion, which is more than the entire CAD, he pointed out.

In an exclusive interview with Entrepreneur magazine, Ranganathan said despite the low share India has in manufacturing and high tech goods in world trade, there has been growth, but that had largely been driven by its large pool of highly skilled population coming out of the institutes. High-tech capital goods and manufacturing would add stability to India’s growth story, he said. “India’s has not been a manufacturing growth story,” he said.

“The CAD arises because we have never been a manufacturing oriented economy. Our manufacturing-GDP ratio has consistently been at around 15.5%. The way world trade is conducted, the bulk is manufacturing. Technology and capital goods have a large share. Computers, laptops, cellphones, TVs, various white goods, all electronics, aircraft, defence – these constitute 25-30% of world imports. Here the Indian presence is low. The second segment is in the high quality luxury goods. Here too, the Indian presence is low,” Ranganathan explained.

He said though the Indian growth story has been good and exports have been growing, even today India’s share of world exports is a modest 1.5-1.6%. “However, we have been globalizing the economy continuously. The trade-GDP share of 15-17% in the ‘80s is now at 45%. Naturally, the impact of global developments would be much higher on India now,” he said, dwelling on the CAD and the impact of the world economy on India.

He said because of other countries manufacturing high-tech goods and luxury goods, during times of recession, those countries were faced with excess capacities and the impact on low manufacturing countries like India was higher.

The answer, he said, was to diversify the export base. “Exim Bank is trying to help the efforts of corporates by carrying out detailed country studies and match them with Indian exports, to help them get to alternative markets. But in the medium term, we need to get used to the idea that CAD will go away only if exports go up and for that we must increase manufacturing,” Ranganathan said.

Significantly, Ranganathan said while a lot was being discussed relating to import of gold leading to a huge CAD, there was another aspect to this. He said gold was being imported, but that was understandable in a sense since it was not being produced in India. However, manufacturing imports, which could produced domestically, had also shot up sharply, increasing CAD.

“Manufacturing imports have gone up faster. Imports of capital goods and technology goods is $90 billion – which is more than the CAD. Almost equal to 1/3rd of total manufacturing in the country,” he pointed out. He said India’s problems would be greatly reduced if such manufacturing exports grew. In such a scenario, India could even have exported such goods which were in high demand worldwide. He said Exim Bank was systematically studying markets which India could exploit for exports and putting out reports on such markets. Africa was one such market where Exim Bank had conducted a study, he said.

Ranganathan also said definitions about what constitutes a micro, small and medium enterprise (MSME) in India needed urgently to be modernized so that Indian MSMEs – a large driver of growth – could compete on equal footing with their peers in the global market. Indian definitions have not been modernized adequately, though the entire world market had changed.

Source : firstpost.com