As the world recovers from the pandemic, India has a huge opportunity to improve its exports as soon as possible by beating its contemporaries.

Foreign Trade Policy (FTP) 2021-26 was due to be released last year but has been postponed given the onset of the COVID-19 pandemic. While India, for various reasons, was unable to meet its 2015 FTP target of US $ 900 billion by 2020, the mid-term review of US $ 1 trillion by 2024 does not appear. not realistic either.

Anxieties

Absolute export data shows that there has been an increase in India’s exports over the past two decades, from US $ 44 billion in 2001, to US $ 220 billion in 2010, to US $ 323 billion in 2019 (the pandemic was an outlier in 2020).

Although there was export growth in the second decade of the century, it was largely stable compared to the first, which merits some concern. Indeed, in 2001 India’s share of world exports stood at 0.7%, it doubled to reach 1.5% in 2010, but remained roughly at the same level in 2019 at 1 , 7%. The percentage of GDP exports fell further from 17% in 2011 to 12.4% in 2018.

Source:United Nations Comtrade, ITC; Author’s calculation

India’s export-to-GDP ratio, compared to that of some of its neighbors, presents a grim picture – while in the case of India, it fell from 25% in 2013 to 18% in 2019; Vietnam, on the other hand, has shown a steady increase from 72 percent in 2010 to 107 percent currently. Some of the emerging economies that have a higher export-to-GDP ratio than India are Thailand, South Korea, Mexico, South Africa, the Philippines, Sri Lanka, and China.

On the other hand, India’s share of manufacturing as a percentage of GDP has hovered around 15% for a very long time. The compound annual growth rate of foreign direct investment (FDI) received by the Philippines increased by 285% and Vietnam by 102% during the 10-year period starting in 2010, compared to 84% for India. Bangladesh’s FDI has also increased by 75 percent in the meantime.

Post-pandemic opportunity

As the world recovers from the pandemic, India has a huge opportunity to improve its exports as soon as possible by beating its contemporaries. The caveat for growth, however, remains if Indian policymakers show full confidence and confidence in their ability to implement domestic reforms to be globally competitive.

The first is to expand India’s export markets. Slowness and lack of risk appetite is one of the main reasons Indian exports are not getting their due. An analysis made by Hirschman Herfindahl Index (HHI) for market concentration of Indian exports was estimated at 0.06 in 2019, up from 0.04 in 2011, indicating significant trade diversification during these years. The HHI is a common measure of market concentration and is used to determine market competitiveness – the higher the number, the better.

Source: World Bank; Author’s calculation

In 2019, India’s top five merchandise export destinations accounted for around 37% of India’s total merchandise exports, up from 40% in 2011. Although the figure shows an improvement, but when the HHI index is compared to other emerging economies like Mexico, the Philippines and Vietnam, the India indicates that the market concentration levels are relatively lower – HHI stands at 0.54, 0.10, 0.09 respectively, compared to 0.06 for India.

As a ready-made measure to increase exports, the government may want listed export-oriented companies to spend at least 0.5% of their income per year on organizing seminars on market opportunities. abroad. This could be akin to GOI’s corporate social responsibility (CSR) initiative in which 2% of their average net profits are spent on the same. Many Indian companies are not even aware of the various sustainability and phytosanitary issues prevalent in the world, preventing them from venturing there. Therefore, it is important to educate exporters, especially micro, small and medium enterprises (MSMEs) in India, which contribute over 48% of Indian exports, who are often unaware of global laws and requirements.

Second, as a corollary to the above, the country’s exports to its existing key destinations are also expected to expand the product range. For example, the Export Market Penetration Index (IEMP) for Indian exports is estimated at 26.8 in 2019, which is now below 27.1 in 2011, demonstrating that the growth potential of proven markets has not been fully exploited over the past 10 years. This is only possible by having a larger overseas marketing network. The IEMP was reported to be highest for China (48.1), the United States (40.6) and Germany (39). The IEMP measures the extent to which a country’s exports reach markets that are already strained.

Source: World Bank; Author’s calculation

Third, it is extremely important for India to diversify its export base by better integrating priority sectors into global value chains. It can be observed that a country like Vietnam, which was an agrarian economy, has evolved, in which more than 30 percent of exports are technology-oriented electronic products.

Recently, the Indian government has put in place targeted production incentive programs (PLIs) to build local industrial capacity, which is expected to benefit both local and foreign businesses, while potentially attracting a certain amount of ‘IDE. It can be noted that India’s high-tech exports as a percentage of manufactured exports were around 10 percent, compared to Malaysia (52 percent) and Vietnam (40 percent). Hopes rest on the PLI program to show some traction to improve the scenario.

Fourth, a comprehensive package for export-led growth in value-added manufacturing and agriculture, such as a tax holiday, that would encourage investment and promote growth should be purchased. Initially, the number of years could be related to the industry and the investment made by the company, and therefore it could be related to sales and exports, both.

Finally, it is very important for Indian companies to participate in global value chains. While many countries have increased import duties, reflecting protectionism, the same should be extended with some sunset clauses. This will help Indian companies know and believe that they have to improvise in the meantime and not rely on protectionism for eternity.

India may have had sufficient reason not to join RCEP in 2020 as it found itself ill-prepared despite the start of talks in 2012 – but it cannot afford to give the same reason again. In conclusion, it is important to inaugurate a favorable, realistic and feasible export policy that is time bound and helps India to become able to play a greater role in world exports while competing with other countries. other.



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