Without serious reform, India's exports can't take off
Blaming the slowdown in global trade for India’s contracting exports, as many in government do, is quite incorrect since, while India’s share of global trade fell from 1.68% in 2014 to 1.62% in 2015, China’s exports’ share rose from 12.42% to 13.96% (despite its rising wages and strengthening currency), Bangladesh’s from 0.18% to 0.22% and Vietnam’s from 0.8 to 1.15%. While rising global imports would certainly help boost India’s exports growth, as a recent World Bank report reinforces, much of the problem lies within and, unless these are fixed, India’s exports aren’t going to grow. Naturally, the report talks of India’s well-known problems—it takes, for instance, 11 days for a container to move from Shanghai to Mumbai but 20 days from Mumbai to Delhi. But, as the World Bank points out, India needs to open up markets in order to improve quality. As compared to China’s 32%, the share of foreign value-added in India’s exports is only 24%—this ensures that, by and large, Indian exporters are not able to use the best inputs the world has to offer and, as a result, the quality of Indian exports is not as good as that from China. Indeed, in the case of readymade garments, India’s high import/excise tariffs on man-made fibres add to the problem since global importers are increasingly moving away from cotton.
Also, since imports are increasingly driven by corporates, it is important for Indian firms to be part of global value-chains—the restrictive policy on FDI, however, prevents this from taking place. Apart from the global linkages, as the experience of Maruti in export markets show, the rapid reduction in import duties in the past also forced Indian producers to get globally competitive. Any policy, like the anti-dumping duties on steel right now, that keeps import tariffs high, it has to be kept in mind, harms India’s export competitiveness.
Other factors that hurt India’s competitiveness include the relatively low skill levels of workers—only 43% of non-production workers in the automotive sector in India, the World Bank points out, are formally trained in comparison with nearly 70% in China. More important, as has been pointed out before, India’s agriculture policies prevent the development of a robust agri-business, either for the local or the export market. As long as there is an MSP-cum-procurement policy, for instance, farmers prefer to stick to growing just wheat and rice. Given the jobs potential the exports market offers, India’s restrictive FDI and import policies will also end up restricting employment growth.