Economy

Re-aligning India's export focus – the need of the hour

C. J. Punnathara | Updated on November 17, 2017

BL11_12_TRADE2   -  The Hindu

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After India's export growth staggered to 3.2 per cent in April, the industry was expecting some big-ticket reforms to kick-start an ailing manufacturing sector and revitalise exports.

But the highlight of the annual supplement to the Foreign Trade Policy 2009-2014 was a two per cent interest rate subvention for labour intensive export sectors. Estimated to cost Rs 1,200 crore during the current year, the move could, at best, assuage the high interest costs of a few export oriented industries.

But the real problem lies elsewhere. While high production costs could have tempered India's export performance to some degree, the real flaw lay in some of India's export markets. And not in the cost competitiveness of India's exports. The Euro Zone crisis and the economic slowdown in the US have been weighing down on India's exports.

Nothing substantial seems to be forthcoming as far as the external markets are concerned. The annual supplement for 2012-13 continues to be more of an introspective, inward looking document and has failed to systematically address the dynamically changing global export environment.

The genesis of the problem can be traced to India's overwhelming dependence on Western markets – the US and Europe. When these markets contracted, India's exports contracted as well. And no amount domestic support to India's export-oriented units could re-generate these markets.

New export markets

But, of late, India's dependence on these export markets seems to be waning. After languishing at 12-15 per cent for three decades, India's trade with Asia and Asean countries picked up dramatically during the last decade.

From just over 14 per cent of India's total trade in 2001, trade with Asia/Asean region surged to 56 per cent in 2005-06. By 2011, trade with the region had spurted to 68 per cent, clocking an annual growth rate of 35 per cent.

The WANA region, comprising parts of West Asia and North Africa showed an exponential growth rate during last decade and today accounts for over 25 per cent of India's total trade. Trade with North East Asia, comprising China, Japan, Hong Kong, Korea and others was growing at 44 per cent per year and accounted for 20 per cent of India's trade.

However, there are laggards as well. The countries of South East Asia, which also include the SAARC countries, account for a meagre 2.85 per cent of India's total trade. This was despite the close proximity as well as the political and economic ties that India has with these countries.

Instead of being cloistered with its internal problems, it is time that the country looked outwards as well. India should focus on the huge potential at its doorstep, instead of worrying over lost opportunities with the rich Western countries.

Over and above the SAARC, the Asean region also offers tremendous scope for furthering trade. Irrespective of its political and economic ties, countries such as Singapore, Indonesia, Malaysia, Thailand, Myanmar, Vietnam, Cambodia and others accounted for only 9.6 per cent of India's total trade. Given the close geographic proximity, there remains huge potential for growth in trade with these nations.

To give a concrete example, on the day when the annual supplement to the FTP was announced, there were reports that Xinjiang, China's far western province, had expressed its desire to build direct trade links with India and Afghanistan.

A top official said the province should avoid routing trade through third-party countries such as Pakistan and instead it should develop new land route for the purpose. Though the decision is political, it is such moves that could further India's exports.

Land routes are available to link India with China, Afghanistan, Pakistan, Nepal and through Bangladesh, Myanmar and other countries of South Asia. The SAARC nations, South East Asian nations and Asean region offer great potential but are still low in India's export contribution. And there have been increasing demands for opening land routes to foster trade from the other side of the border.

Astute moves by the Government at the right time could multiply India's trade with the neighbouring countries. Making India's exports cost competitive is essential. But re-aligning India's export focus is of greater relevance at the moment.

>cj@thehindu.co.in

Published on June 10, 2012

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