India cannot put the entire blame on the global environment for its poor export performance because while its share in global exports is falling, those of Bangladesh, Vietnam and China are still rising despite the adverse environment, according to a research paper by Crisil. India’s merchandise exports had shrunk in 20 of the last 21 months.
Pointing out that many obstacles lie in India’s path to raise its export competitiveness, Crisil said to harness its full potential, India needs to remove bottlenecks, capture the space vacated by China, integrate faster with the world and improve international competitiveness of its key exports.
However, in the paper titled "Bifocal, please: ‘Make in India’ needs to lean on both exports and domestic demand", Crisil also said, "While India needs to bend over backwards to find export avenues, its domestic market is on the cusp of an expenditure boom."
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Encouraging policymakers to put the country on a ‘dual path’ – of striking a balance between export-led and domestic demand-led growth strategies of focusing on exports as well as domestic market, the paper said, “India will need to nurture its export potential to make its goods competitive, yet lean on fast-expanding domestic demand to promote its manufacturing sector.” There are two roads, and India must necessarily walk both, to achieve the full potential of its Make in India programme, it said.
The bottlenecks, which India need to remove to raise its export competitiveness, include rigidity in labour laws, challenges associated with land acquisition, inadequate physical infrastructure (roads, ports and electricity), and poorly skilled manpower have held back manufacturing sector growth, Crisil said. It cited World Bank data to show that cost to exports (in 2014) in India was $1332 per container, while that of Bangladesh was $1281, China ($823), Vietnam ($610) and Indonesia ($572).
On the need for India to capture the space vacated by China, the paper stated that China has been moving up the value chain, exiting the low value-added manufacturing space (textiles, apparel, footwear, toys). This, along with rising wages in China and the government’s strategy to focus on domestic demand, means more export opportunities will become available to other competing economies, it said, adding that India must strive to capture the space.
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However, it said, “Data suggest this hasn’t happened so far. For instance, India’s share in world exports has remained more or less similar between 2001 and 2015 in textiles and apparel, while it has increased manifold for Bangladesh and Vietnam. In footwear too, Vietnam’s share in world exports zoomed, while India’s share stagnated.”
Regarding its recommendation that India needs to integrate faster with the world, Crisil said, “India must move fast to renew its stalled trade negotiations with the European Union and the ongoing dialogue in the Regional Comprehensive Economic Partnership (or RCEP, a proposed free trade pact between 16 Asia Pacific nations including India).”
On the suggestion that India needs to improve international competitiveness of its key exports, Crisil said the revealed comparative advantage (RCA), a measure of international competitiveness, for some of India’s key export items has declined in the past decade. “Key among these are gems and jewellery, organic chemicals, textiles, iron and steel products, and clothing. Most of these sectors have large employment multipliers,” it added.
Crisil said a big opportunity lies in the making for India, but converting this potential into real growth may require steps including improving purchasing power across the board, bringing out favourable tax policies for the middle class, increasing investment and attracting FDI as well as maintaining global competitiveness.