A recent HSBC report on growth outlook for India identifies two new growth engines — digital adoption and high-skilled exports. It comes as a whiff of fresh air in the hitherto stale environment of Indian exports.

The Covid-inflicted Indian economy, which declined 23.9 per cent in Q1 2020, rebounded to log a GDP growth of 20.4 per cent in Q1 2021 and exports contributed significantly to this. Merchandise exports touched a record high of $35.2 billion in July 2021, which was almost 48 per cent more than the $23.78 billion recorded in July 2020 and around 34 per cent over the pre-pandemic export value of $26.23 billion in 2019.

August 2021, too, showed an impressive increase of 45 per cent over the year-ago period. In fact, the exports grew by a whopping 66.92 per cent in the first five months of this financial year. The quarter ending June showed India having a current account surplus.

Exports worked wonders for Japan, China and the Southeast Asian tigers too. Somehow, it evaded India. India and China have almost similar export-to-GDP ratio — nearly 18 per cent — and yet China is called ‘the world’s factory’ while India is seen as a market. Can India’s GDP grow like China’s on the power of exports? For the current fiscal, the Ministry of Commerce has set an export target of $400 billion.

Competing in the international markets has never been easy as economic forces keep making it more complex for India. Recall June 2019, Trump removed India from the list of beneficiaries of General System of Preferences (GSP). India being the sixth largest economy, the US needed market access for its farm and dairy products. India denied and the US retaliated. A case of diseconomies of scale working against India. It should not have come as a surprise as any country growing richer will be denied the preferential status earmarked for developing nations. WTO objects to subsidies.

In 2019, a WTO panel had recommended that India withdraw the “prohibited subsidies” like the Merchandise Exports from India Scheme (MEIS); Export Oriented Unit (EOU) scheme and related sector-specific schemes; Special Economic Zones (SEZ); Export Promotion Capital Goods Scheme (EPCG); and a duty-free import for exporters programme (DFIS).

According to the Office of United States Trade Representative (USTR), Indian exporters received ‘illegal export subsidies’ worth over $7 billion annually. Why illegal? Because such subsidies provide unfair advantage to the recipient firms and hence are prohibited under the WTO. The WTO provides a limited exception to this rule for specified developing countries, and even that is temporary. Subsidies have to be withdrawn as these countries reach a particular defined economic benchmark. India crossed the benchmark in 2015.

But Bangladesh, whose per capita income surged past India’s in May 2021, continues to be in that select group and hence has an advantage over India. As the Indian economy grows richer, disadvantages like these would grow too. Adam Smith said long ago that any economic system will generate counter-forces to arrest a continuous growth or decline.

Disadvantages and constraints have grown for the US, European countries and now for China too. Counter-forces in the case of China may be the ‘common prosperity’ goal, Evergrande crisis, power crisis, the need to cut down pollution which implies cutting down production, rising wages, geopolitical adversities, ageing population, growing inequality, the strengthening yuan, etc.

Opportunity in adversities

Indian exporters sense opportunity in the adversities that China has to face. Instead of relying on support of subsidies the exporters have begun sharpening their business strategies. In a recent workshop organised by PHDCCI, Sivaramkrishnan Ganpathi, MD and CEO of Gokaldas Exports Ltd., said: “Never plan your business on subsidies.” During a period of low global demand, the company made the operations more efficient, increased productivity, consolidated vendors, and ensured labour availability during the pandemic. The measures enabled it to be a preferred supplier.

Several such stories will emerge as efficiency gains are realised with increasing adoption of digital technologies. The widespread application of Internet of Things (IoT), Artificial Intelligence (AI) and automation in business and governance have led to synergies yielding to efficiency gains. These are visible across a wide spectrum of macroeconomic indicators. In September, GST collections, at ₹1.17-lakh crore, were at a five-month high; exports grew a robust 21 per cent; Manufacturing PMI rose to 53.7; and CPI inflation remains below 6 per cent.

The government is also doing its part to regain the economic momentum through initiatives such as Aatmanirbhar Bharat Rozgar Yojana, extension of Emergency Credit Line Guarantee scheme, Production Linked Incentive Scheme for 13 champion sectors, reduction in the performance security on contracts, and income tax relief to developers and home-buyers. Simplification of various exports incentives is also being attempted. Announcement of RoSCTL and RoDTEP schemes, among others, are also expected to boost the export growth trajectory of India.

The rising commodity and energy prices, posing a challenge in fuelling the export growth, may be transitory. The efficiency provided by IoT, AI and automation are here to stay. The fast expanding edtech sector is accelerating the skill development in the country. Mandatory FASTag is accelerating the mobility of goods. E-payments and e-commerce are increasing the velocity of money. India’s low per capita income and newfound productivity build a strong case for exports yielding prosperity for the country.

The writer is Professor of Economics - Director PGDM, Great Lakes Institute of Management, Gurgaon