India’s merchandise exports in the last five years (FY17-21) have grown at an average annualised growth of 2.4 per cent, and at a similar business-as-usual scenario they are expected to touch $320 billion in FY22. The government, however, expects exports to touch $400 billion in FY22.
To achieve it, India needs to grow at 27 per cent year-on-year in FY22. In FY20, the High-Level Advisory Group had announced an ambitious goods export target of $618 billion by FY26. To achieve it, exports have to grow at a compounded annual growth rate of 16.3 per cent during the period beginning FY21, after considering the dip due to the pandemic.
State diversification
Though this export target may look high, it is easily doable if supported by the ‘middle-10’ exporting States — these are those whose exports hover around the eleventh and twentieth rank in India’s overall exports.
Though over the years there has been a lot of talk about export diversification of both products and markets from India, little thought has been given to the same from the States’ end. Upon dissecting export numbers of the States, it is observed that they have largely remain concentrated among the top ten in the country.
There is no denying the fact that the State needs to play a pivotal role, but given that the targets are being set for the country, it is crucial for the Central Government to support those States which are being left behind, by making them amenable to exports.
As in FY21, 84 per cent of India’s exports happens from the top 10 States, while the first five contributes 64 per cent alone. India’s foreign trade needs an all-inclusive growth in exports. A handful of States accounting for a large share of total exports does not augur well for the development of India’s export capabilities.
An important aspect that comes to light upon analysing the products that are being exported from the various States, is that the top five exporting States exhibits an average product export concentration (PEC) of 71 per cent, while for the top ten it is 75 per cent. Analysis shows that the average PEC amongst the ‘middle-10’ stands at 85 per cent, that is, almost 10 per cent more than the top ten exporting States.
PEC is found to be a critical element of the tenacity of a State to undertake exports. If the PEC is high in some of the States, it exhibits their inability to move up the export market given their concentration of exports to a handful of them. Here, PEC is calculated for top ten exported products from each State.
Improving the export competitiveness of States can also lessen regional disparities through export-led growth and resultant improvement in standard of living. In fact, with the exception of Odisha, there is a strong correlation between a State’s contribution to India’s exports and the PEC.
Centre-State partnership
The role of the States cannot be looked at in silos by the Centre. The State can act as a facilitator to production of exports by creating the requisite infrastructure.
As the Foreign Trade Policy is due, it is important that the policymakers give due attention to the growth of exports at the State level. While the importance of the State towards export growth is quite often highlighted, much more is required to be done by the Centre towards supporting the cause.
Firstly, providing incentives at the State level would be helpful, to select industries which have grown in the last 20 years but have confined their growth to some pockets.
For example, it is but ironical to find most of the big four-wheeler automobile companies being based either in the south or west of the country. If ports are the key reason, some of these companies could have been located in Odisha for example, but that has not been the case.
To support such developments, the State government needs to extend innovative incentives to such key industries so that other States also grow in parallel.
Secondly, given that export subsidies warrant WTO norms, the government can extend incentives to boost sales of identified products when done from States which has high export preference. For example, low-tech products like textiles, leather, etc,. which is location neutral and can exhibit productivity from any State, can flourish in a new jurisdiction if suitable incentives and environment are provided.
The State government must also create a cooperative labour environment and provide adequate power to attract such industries.
Thirdly, the listed companies could be offered some rebates if they set up manufacturing or production units in States which are not amongst the top ten exporting ones. They could set a ceiling on investment along with exports that would be required in such cases.
Another possible step could be identifying products by the States which could be classified under geographical indicators (GI) and thereafter branded in the international market after they meet the globally acceptable standards.
It is important to realise that the potential contribution of these ‘middle-10’ exporting States is crucial to achieving the $618 billion export target. This would require the Centre and States to work together.
The writer is Senior Economist, India EXIM Bank. Views are personal