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How can India increase its exports

By on January 23, 2017 in Trade Policies with 0 Comments

exports

 

In June this year, India witnessed a rise in it’s net exports for the first time in 19 months, which grew 1.27 percent to $22.6 billion (India’s exports grew by 10 percent in the month of October). For a nation that is one of the fastest growing economies and which is trying to emulate China in becoming one of the world’s leading exporters, this sporadic and volatile export growth rate is disheartening to say the least. Although factors such as global economic slowdown, fall in crude prices, political instability in some countries and a wave of economic protectionism in major nations can be attributed as the reasons for this decline, some self made reasons such as questionable trade pacts, losing price competitiveness as a result of poor logistics infrastructure and a lack of product diversification are also responsible.

exports figure

The above infographic completely lays out the full picture. For almost 2 years, India’s export growth has remained stagnant.

So the question that arises now is what can be done to correct this. First of all let us be clear about the fact that increasing India’s exports is not something that can be done in a short time period through making a single policy. It requires comprehensive policy planning and effective implementation. Although it might take some years to achieve effective gains, rest assured they will be long lasting. So what steps can the government of India take to revive exports, in line with what would be deemed suitable for one of the world’s fastest growing economy.

 

Trade liberalization

A recent study has concluded that India could increase its annual exports by around $500 billion by implementing economic reforms that are long overdue. By liberalizing its own market for foreign trade, India can then persuade world economies to open their markets for Indian exports. These are the same countries that have put various trade restrictions on Indian goods. Trade liberalization will also help in bringing domestic prices in line with global ones, which will create suitable conditions to ensure improved efficiency and competitiveness of domestically produced goods. Although there are a lot of naysayers who term this approach as self damaging, it can be stated that this measure has a large probability of benefiting India, with the overall disadvantages being lesser compared to prospective benefits.

 

Product diversification by exporters

Just to put a perspective, the top 20 categories account for a whopping 78 percent of India’s total merchandise exports. Moreover, in textiles, India majorly exports low value commodities like cotton yarn instead of high value technical textiles such as agricultural textiles, industrial textiles and many more. Although the aforementioned facts are related to the textile sector, the scenarios in other sectors is pretty much the same, indicating the narrow base of India’s exports. This clearly puts light on the need for product diversification by Indian exporters, which will greatly benefit them.

 

Renegotiate on unfavorable trade pacts

Over the past few years, successive Indian governments have had this tendency to get into trade pacts more so for geo political reasons rather than simply for trade reasons. Trade pacts such as the south Asian free trade agreement, free trade pact with ASEAN (association of southeast Asian nations) are two examples where getting into trade agreement has failed to yield any considerable advantage for Indian exporters, even after obvious logistical advantages and somewhat similar product preferences in South Asian countries. Also, the sourcing restrictions put by India mostly appear to be ill thought of. An example being very high import duties on raw materials and lower import duties on finished products. This discourages manufacturing and export of value added items. The sooner India renegotiates or finds a way to make certain trade pacts more favorable, the better it would be for it’s exports.

 

Put strong emphasis on manufacturing sector

According to UNIDO ( united nations industrial development organization), India’s CIP ( a composite index which measures the ability of countries to produce and export goods) still lags far behind China, with the yearly growth rate not being satisfactory either. Moreover, India’s manufacturing exports are technologically backward as compared to China, with the share of medium to high tech exports being very less. To correct this, a long term approach focused towards labor law reforms, improving quality of the workforce, solving the persistent material handling issues should be undertaken. One more important point here is all of the aforementioned steps should specially be focused towards MSME manufacturing units.

 

Simplify regulations and also make taxation laws stable

Perhaps the biggest hindrances to the growth of exports in India are issues such as inordinate bureaucratic delays and tax laws which periodically keep changing. Although it should be mentioned that the government has taken some initiatives resulting in improvement on these counts, still many issues are yet to be solved. More can be done through further simplifying taxation policies and integrating technology when it comes to granting approvals ( an ideal solution would be putting the whole bureaucratic approval granting process online, thus ensuring better transparency and efficiency)

 

Ensuring the availability of credit for exporters

Any exporter requires both short term as well as long term credit to grow. This is even more true for SMEs than for large export firms. It’s well known that firms in India manufacture innumerable products that are unique and which might have a very fertile market in western countries. All that is lacking is a streamlined approach aided by government to enable SMEs even in the most rural areas to have access to western markets. Making credit available for these firms so that they can produce goods in bulk quantities that are favorable to export is a major step towards achieving this.

 

The above mentioned steps are just some in a long list of initiatives the government can undertake to increase India’s exports. Doing so will greatly aid established Indian exporters and also the upcoming exporters. The economic rise of China has shown that for a billion plus nation like India, to set on the path of long term sustainable growth, improving its export competitiveness is paramount.

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