Let’s export our way out of trouble

India must tap export opportunities in different sectors, including gem and jewellery. — Mohammed Yousuf

We need to build on the export pillars of brands, high-technology products and e–commerce.



CAD (current account deficit) is the buzzword these days. A CAD of 5.4 per cent in the second quarter of the current fiscal is reminiscent of the 1991 crisis when we were faced with a rising trade deficit, high inflation and the Gulf War.

The trade deficit of over $182 billion in first eleven months of the current fiscal, inflation above 7 per cent and the crisis in West Asia are conditions akin to 1991. However, our economy is far more robust and in a position to meet such challenges.

With forex reserves of over $290 billion (sufficient to cover about eight months’ imports), and with encouraging inflows through FII, FDI, ECB (external commercial borrowings) and private transfers, we are not faced with any immediate threat.

Nevertheless, sustaining such a high CAD will render the economy vulnerable to global challenges. It is clear that the main culprit for rising CAD is the merchandise trade deficit; in services as well as on capital account, we have a comfortable surplus.

Given the inelastic nature of India’s imports, augmenting exports is the only option available for managing the CAD (the only option, perhaps, on the import side is curtailing gold imports through high tariff). Fortunately, the Government as well as economists are on the same side on this matter.

MANUFACTURING EXPORTS HIT

Exports must act as drivers of the economy. If the Indian economy has clocked over 7 per cent GDP growth in the last decade, much of the same was contributed by a CAGR of over 20 per cent in exports in the same period. The fact is that Indian exports and the economy are intertwined.

Manufacturing holds the key to India’s exports growth. This is because the share of manufactured products is increasing in the global trade basket. Overall exports suffered on account of decline in exports of main manufactured products, such as engineering, gems and jewellery, petroleum and textiles. These four sectors contribute to about three-quarters of India’s exports.

Contraction in global demand, rising manufacturing cost and fall in global commodity prices have affected exports. Making manufacturing competitive should be the focus. The National Manufacturing Policy (NMP) and National Manufacturing Investment Zones (NMIZ) should add to competitive manufacturing.

However, let us also seek export-oriented FDI, which brings both technology and access to markets. Another challenge that confronts manufacturing is getting a skilled or semi-skilled workforce.

MARKET OPPORTUNITIES

Unlike China, we have not been able to mobilise a workforce from rural India due to lack of skill. The National Skill Development Mission has taken the lead in imparting and upgrading skill, but there has to be a greater synergy between manufacturing needs and skill development.

Exports are equally affected by macro-economic variables such as inflation, world demand, non-tariff barriers and exchange rate. Except for the last factor, the rest are not favourable to exports. However, the global demand seems to be increasing.

The real-estate market in the US just saw its largest restorative growth since 2006 and the unemployment rate in the US declined to 7.8 per cent with the creation of 2,32,000 new jobs in February. The deficits of some European counties are becoming smaller. And the economies in Greece and Spain are recovering slightly.

The economic growth of MIST countries (Mexico, Indonesia, South Korea and Turkey) is on the rise. Since exports this fiscal would be lower than last fiscal, we need to attempt a 35 per cent growth in 2013-14. This is an ambitious but achievable target, provided the right mix of policies is in place.

Exports can be made competitive through lower cost of credit, full rebate on duties and taxes, reduction in transaction costs and better infrastructure to reduce the delivery cycle. However, aggressive marketing plays a pivotal role.

We have to be visible in the markets to get better returns. In a phase of contracted demand, return may take a longer period. Our demand for an ‘Export Development Fund’ emanates from this logic, coupled with the fact that a majority of exporters hardly have the financial wherewithal to meet the requirements of aggressive marketing. A fund with a corpus of 0.5-1 per cent of exports can be a gamechanger.

India is a global leader in IT, yet we are struggling with a complete electronic data interchange module for agencies involved in exports and imports. A little progress has been made, yet it is tardy and probably reflects the lack of will. A single window for exports, coupled with electronic flow of documents among the agencies concerned, will reduce the transaction cost by 2-3 per cent. If that happens, a saving of $6-10 billion will be achieved in exports with no cost to exchequer.

We, simultaneously, need to build on future pillars of exports which could be brands, high-technology products, e–commerce and countries or regions with potential such as Iran, China and Africa.

We need to exploit the opportunities in Iran for increasing exports of pharma, gems and jewellery, auto components and white goods, besides agriculture commodities.

The rising manufacturing cost in China, shifting of industries from coastal cities to distant landlocked regions, shortage of working population and a continuously appreciating currency have started compelling China to shut down manufacturing in high labour intensive products, opening an opportunity for imports from India. However, a close look at India’s export profile with focus on value-addition will hold the key.

DESTINATION AFRICA

Africa has emerged as an ideal region both for exports and investment. Consumer spending will double in Africa in the next 10 years and 75 per cent of countries in Africa will have an average per capita income of over $1,000. There is a growing resentment against China, which needs to be exploited by us. Efforts of all agencies should concentrate on Africa.

Let us set up a mega store such as the Dragon Mall in Dubai which is spread over a km and displays all products manufactured in China. African buyers do not visit China for procurement of goods and instead place their order in Dubai.

If we provide similar exposure for Indian products at any place in Africa, it will be a huge support for Indian exports.

Let us not miss the bus again and allow South-East Asian countries to overtake us.

(The author is President, FIEO.)

Published on March 25, 2013
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