The Hindu Business Line : `Leverage supply chain through tech product exports'

By the book
Over 50% of Indian exports target less than 11% world trade.
Margins of unorganised players may come under pressure.
India can learn from successful exporters like China, Thailand, Malaysia, Taiwan.

New Delhi June 7 Even while India needs to scale-up exports, where it has comparative advantage, there is an overarching need to enter into exports of technology products in order to become an important part of the global supply chain, says a new monograph by a serving bureaucrat of the Government.

Written in his personal capacity, the monograph titled `Achieving superlative export performance' by the Director in the Ministry of Commerce, Mr Ajay Srivastava, admits that the products figuring dominantly in the Indian export basket constitute only a tiny fraction of global trade.

Thus, over 50 per cent of Indian exports target less than 11 per cent of world trade. To compound matters, India has less than 0.41 per cent share in the products, which count for 65 per cent of world trade.

Efficiency quotient

Stating that the country's exports are predominantly labour-intensive and natural resource-based products such as textiles, clothing, diamonds (cutting and polishing small stones), low category engineering, chemical and pharmaceutical products, Mr Srivastava said that instead of focusing on low cost labour as the main source of competitive advantage, Indian firms must consider efficiency in producing standard products as the dominant source of competitive strength.

In a foreword to the tome, the Union Commerce and Industry Minister, Mr Kamal Nath, said that while presenting the perspective on the state of Indian exports in the next 10 years, the author has rightly argued that the structure of Indian exports must be built on the sound competitive foundation of its industry.

The study said a large category of Indian exporters acts as a small link in the exporting chain, which works on an elaborate system of subcontracting. In most cases such firms have scant hint of the ultimate buyers (of their products), or their preferences, as they generally sell to a middleman at throwaway prices.

Informal biz

Most of the Indian garments/leather/handicraft/low technology engineering items are produced in the small and informal sector. Over half the gems and jewellery industry in the country is concentrated in the unorganised sector and follows a subcontracting model known `Job Lot Method'.

The study points out that many such firms do not comply with labour and tax and regulatory obligations and such advantages leave the informal businesses free to undercut their formal competitors. "Large retail firms like Wal-Mart keep away from such establishments and since the market share of large buyers is increasing, margins of such exporters may come under pressure," the study cautions.

Despite this traditional export structure, the emerging export structure offers hope for a bright future with the advent of large domestic corporates, Indian mini-multinationals, small and medium scale companies and internationals MNCs having manufacturing facility in India.

This needs to be encouraged by an enabling milieu, the author said, adding that India could not hope to effectively take part in 60 per cent of world trade without benchmarking its customs administration with the best countries.

Tech call

In order to capture the technology export segment, India must understand the new reality where competitive advantage lies not with the firms but with the efficient global supply chains. It should take a cue from the basic policies of successful Asian exporters like China, Thailand, Malaysia and Taiwan.

These include low indirect tax at 5 to7 per cent on finished goods, zero customs duties in most cases, no taxes like Central Sales Tax that have a cascading effect and almost no cases of inverted duties. Besides putting an accent on uninterrupted low-cost power and cheap finance, India urgently needs to work on efficient infrastructure and plug and play customs clearance mechanism to participate.

The study said that India today is in a better position than China was in 1990s when it began betting on the technology sector as most factors like sound technology base and expert manpower needed to participate in this sector exist in India.

He said the country could focus on two broad categories to enter the technology markets viz., assembly of electronic and telecom components and high-end industrial products which include integrated circuit, turbojet, piston engine, centrifuge, internal combustion engine, pump for liquid, recorded sound media, self-propelled bulldozers, laser machine tools, radio navigation aid, and industrial furnaces.

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