The course of economic history is intriguing. In 1775, Asia accounted for 80% of global output, with China and India together representing two-thirds of global production. The centre of power gradually shifted to Europe between 1750 and 1850, and by 1950, Western Europe and the US accounted for more than half of global production, with India’s share reduced to only 4.2%.
The picture is changing today. Developing Asia accounts for 29% of global GDP and 32.5% of global trade. India recently became the sixth-largest economy in the world and, according to the International Monetary Fund, India would be the fastest-growing large economy in the world during 2018-19. This growth in output stems largely from domestic demand, which is a significant departure from the export-led growth strategy followed by several Asian economies.
Export-led growth strategy is a double-edged sword that was successfully wielded by Germany and Japan in the 1950s and 1960s, ‘East Asian Tigers’ during 1980s and 1990s, and by China in 2000s. The macroeconomic structure of the Asian economies highlights the significant contribution of exports to economic output. Share of exports in GDP was high at 43.1% for South Korea, 19.8% for China, 173.3% for Singapore and 71.5% for Malaysia. In contrast, the corresponding share was only 18.9% of India’s GDP in 2017.
Scope of export-led growth strategy in India
While India’s growth has been largely driven by domestic demand, exports are expected to play a prominent role in scripting India’s future growth story, especially in light of the revival in global demand. Some of the crucial themes for the export strategy would be demand-based export diversification, alleviating structural deficiencies, easing supply-side constraints, and integrating the country in global value chains (GVCs).
There is a need to shift our focus from exporting what we can (or supply-based), to items that are globally-demanded. Currently, major export products for India, accounting for nearly 75% of the total exports, have a share of only 33.5% in the global imports. India has limited presence in major trade sectors like machinery and electronics, which have strong trade-investment links and a significantly large share in global imports.
Enhancing our exports of machinery and electronics will require integration in GVCs of these products, which will necessitate measures aimed at trade facilitation, improvement in business environment, reduction in barriers to trade, and improvement in logistics.
Recognising the need for improvement in logistics, the government has already started a wide array of projects including the Bharatmala and Sagarmala initiatives, and establishing coastal economic zones, which are expected to bode well for exports. The government is also working towards a national strategy for standardisation to tackle challenges pertaining to quality and compliance with standards. Identification and conformance to specific standards and regulations across different industries could enhance our participation in GVCs.
Apart from diversification towards high-value-added products, India also needs to penetrate new emerging markets. Growing protectionism in the West, larger financial flows towards developing and middle-income countries, and the rapidly expanding middle class in Africa, Latin America and Asia means that South-South trade relations would increasingly gain importance for Indian exports. Thus, going forward, strategies focused on increasing access to these markets will be important.
The Africa- Asia Growth Corridor shall form a critical element of a market diversification strategy. And access to new trade routes through projects—such as the Chabahar Port in Iran and the North-South Corridor of Iran’s Bandar Abbas Port—will improve our access into the markets of Central Asia and Russia.
In addition, India needs to adopt non-price mechanisms for boosting export competitiveness, in the light of increasing demands to cut back on export subsidy schemes under the WTO Agreement on Subsidies and Countervailing Measures. Existing allocation of funds towards subsidy need to be redirected to create capacity for value-added exports. Increasingly, non-price factors like quality, innovation, trade agreements and concessions in reciprocal exports will form the key tenets for building India’s export competitiveness.
The government is already working on several of the aforementioned aspects of export promotion, armed with its arsenal of ambitious schemes and policies. All that is needed now is a swift and concerted effort to accelerate the implementation and create a conducive environment for projects to take off. It is time for India to embrace the export-growth strategy, outsmart the ‘middle-income trap’ and lead the world’s biggest democracy to its very own ‘Great Leap Forward’.
Source: financialexpress.com