Targeted policies can make exports soar

GLOBAL trade flows continue to be sluggish, so India may find the going tough in world markets this year. Merchandise exports in the first quarter (April to June) of the current fiscal showed a marginal growth of about 6 per cent, even as services exports continue to be buoyant. Despite the positive growth data, the medium-term outlook remains uncertain with many potential external headwinds. These include slowing import demand in advanced economies and geopolitical strife affecting worldwide cargo movements. Logistics issues created by the bottlenecks in the Red Sea have already raised shipment costs, while container shortage is another stumbling block. Other issues related to non-tariff barriers could potentially assume grave dimensions. This includes the imposition of new trade rules, especially those linked to climate change and environmental issues. The European Union’s decision to impose higher tariffs on high carbon goods like steel, aluminium and cement — the carbon border adjustment mechanism — has already rattled exporters dealing with this major market.

Though India remains the world’s leading arms importer, it has shifted gears in recent years to figure among the top 25 arms exporters.

This does not mean that India’s exports cannot show an exponential rise in the coming years. There are a few areas where higher investments and facilitation measures have already worked wonders in driving growth. These include mobile phones, toys and defence equipment. The success story of mobiles is well known. The phenomenal rise in exports over the past two years has pushed this country into becoming the sixth largest exporter now from the 23rd rank in 2014. The stimulus has primarily come from two leading global brands, Samsung and Apple. They have made large investments here which have translated into a spurt in domestic output and exports.
The toy export story, in contrast, has been highlighted only recently in the Economic Survey. It attributes the rise in toy exports and the shift away from import dependence to a raft of measures launched over the past decade. This includes a national action plan for toys, raising import duties and laying down quality control guidelines. Significantly, there has been an integration into the global value chain for toys along with zero duties in key markets like the UAE and Australia. The end result has been a compound annual growth rate of nearly 16 per cent for toy exports over the past decade. At the same time, the dependence on supplies from China has waned considerably. Its share in toy imports dipped from 94 to 64 per cent over this period. The number of manufacturing units doubled, while the reliance on imported inputs fell from 33 to 12 per cent from 2013 to 2020, according to the survey.
This may not make the country one of the top toy exporters in the world, but it does show that targeted policies can make a dent in unexpected areas. One must remember that this is an industry utterly dominated by China, which accounts for over 86 per cent of the world’s exports.
Yet another area that has witnessed a dramatic turnaround is defence exports. Though India remains the world’s leading arms importer, it has shifted gears in recent years to figure among the top 25 arms exporters. The reasons for the change are said to be simplifying of export procedures and curtailing delays by going with online export authorisations.
Given these success stories, it is clear that specific policy initiatives can play a pivotal role in crafting success on the trade front. Such strategies need to be replicated in other sectors. Agriculture and allied areas, for instance, are recognised as having enormous potential for exports but have not yet fulfilled this promise. The need for agro-processing units in rural areas to enable easy movement of products from farm to factory has been discussed for many years, but there has been little action on the ground.
Apart from processing units for adding value to fruits and vegetables, there is a need for a cold chain infrastructure. This is essential if India is to become a significant player in the global food products trade. Some schemes were launched in 2017 to support the creation of the cold chain, but these are reported to have made progress in only a few states.
Besides providing infrastructural support, giving a boost to agricultural exports will also require a shift in policy approach to support farmers rather than consumers. For instance, the traditional kneejerk reaction to market fluctuations in prices of commodities like wheat, rice, sugar or onions has always been to curb exports to improve domestic availability. This creates a disadvantage for the country in global markets, making it appear as an unreliable supplier. It also deprives farmers of the benefits of higher market prices. A long-term policy for the export of agricultural products is necessary in order to achieve the twin aims of retaining India’s reputation as a trusted supplier as well as of providing remunerative prices to cultivators. While there is admittedly a need to keep food inflation in check, it needs to be done through better long-term management of surplus stocks rather than imposing export bans.
In evolving trade policies, greater attention also needs to be paid to the handicraft sector, which has faced a decline in exports in the last financial year due to recessionary conditions in major advanced economy markets. This is a sector that is also a major employer, especially of artisans and skilled workers. There are numerous government schemes to provide support, but it is still plagued by low wages despite the high level of skills needed for creating handicrafts.
Exports are usually viewed as being dependent on economic conditions in key markets. This is true to a large extent. But it is also true that formulating policies targeting specific sectors can have a dramatic impact, as in the case of toys. One of the key elements in all sectors that have shown a spurt in growth is higher investment. This has been evident for mobile phones, but it has also been so for defence equipment, where the process of indigenisation has entailed sizeable public and private sector investments. A fresh look is thus needed at export policies in order to replicate the remarkable success of these sectors in other areas.