Just export policy won't do PDF Print E-mail
Friday, 06 October 2017 03:37
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If local units not competitive, exports can’t take off

Commerce and industry minister Suresh Prabhu is going to be meeting exporters and industry bodies later today, along with representatives of key ministries like finance, to come up with measures to boost exports and to come up with inputs for the mid-term review of the Foreign Trade Policy—as compared to the target of $900 billion of exports by 2020, India’s exports are less than a third at $275 billion in FY17; exports have shrunk as compared to FY14’s $314 billion. Meeting exporters regularly is important to get a sense of immediate pain points, such as the stuck refunds under GST—a solution to this is to be found in the GST Council meeting today. The larger issue that Prabhu needs to keep in mind, however, is that it is simply not possible to get an export strategy if the domestic manufacturing strategy is not right. In the apparel sector, for instance, India’s tiny manufacturing units—2 million establishments, on average, employ 1.5 persons while another 2,800 hire 118 workers each—simply cannot compete with countries like Bangladesh and Vietnam on either quality or prices since they have much larger units. And this, in turn, is a direct result of India’s labour laws that make it difficult to run larger units. Similarly, since the bulk of exports are manufactured, the small size of India’s manufacturing sector acts as a constraint in all but a few sectors.


Fixing this means, for instance, changing labour laws which, for the last three years, the government has not been able to make any progress on. There are the costs of poor infrastructure—road transport in India costs $7 per km versus $2.5 in China, and it takes 21 days to deliver from JNPT to the US East Coast versus 14 days from China. In the agriculture sector, which is very competitive, for decades, the government has not allowed an exports-focussed agriculture to develop since, the moment local prices start rising, the government imposes stocking limits on those holding supplies and either bans exports or puts a high tax. In the case of buffalo meat exports, a fresh controversy involving gaurakshaks and not being able to sell animals for meat in animal fairs has slowed down the business. In short, if Prabhu is to get India’s exports engine going, he can’t do this unless the major impediments to the domestic industry are removed. There are some solutions that involve bypassing local laws—special labour laws were cleared for the apparel sector a year ago—but this can’t be a long-term solution; and as the huge delays in the Delhi Mumbai Industrial Corridor show, putting together large export zones, as suggested by former NITI Aayog chief Arvind Panagariya, won’t be easy since land acquisition remains a challenge.


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