By Ajay Srivastava
When Prime Minister Narendra Modi met with his Economic Advisory Council for the first time yesterday, reversing the current economic slowdown was top of the agenda. A surge in demand for products and services would be a certain cure for most of the Indian economy‘s current afflictions: low capacity utilisation, low investments, low production, low job creation or low GDP growth rate.
And there is no better way to pump up demand than catering to orders from all over the world. India can target an export turnover of a trillion dollars by 2022, up from the current $440 billion. Meeting this target will need taking seven steps.
One: Promote manufacturing of products the world buys most – bulk drugs, organic chemicals, engineering, electronic and telecom equipment, and so on. For this, the government would need to announce sector specific incentives and tax breaks and then rope in an anchor firm for each product group. Anchor firms kick-start operations and achieve high growth using their global network and money. They also persuade others to join the network.
Also promote textiles, leather and other labour-intensive products where manufacturing is shifting from China to lower cost countries. A manufacturing push will also help in diversification and growth of the services sector, which today is mainly the story of IT services exported to the US and EU.
Two: Invest in Global Value Chains (GVC) ready trade infrastructure. India does not produce electronic, telecom and high-tech products as its port-customs infrastructure does not guarantee quick entry and exit of goods. This is critical as parts and sub-assemblies of such products are manufactured in many countries and delay in shipment at one port disrupts manufacturing schedule in another country.
To improve, India needs to automate port and customs operations and allow green channel clearances for most consignments. Match the turnaround time of ships with the best global parameters. This will shorten queues, ensure quicker transactions and allow better use of infrastructure.
India must also set up a new online platform for processing all regulatory and commercial requirements of exporters. The platform should allow exporters to file all information/documents online doing away with the need to deal with customs, DGFT, shipping companies, sea and air ports, and banks separately.
Three: Focus on improving product quality. Many Indian products fail quality tests due to traces of pesticides, pathogens, illegal dyes, etc. India needs to redesign its quality infrastructure to help firms move to higher quality standards and protect the country from substandard imports.
Institutions responsible for developing standards, setting guidelines for inspection, testing and quality certification must adopt global best practices. We also need to set up more globally accredited testing laboratories, enhance the capacity of Indian testing laboratories and sign Mutual Recognition Agreements (MRA) with partner countries for accepting each other’s products. India’s agriculture exports will gain most with these measures.
Four: Reduce cost differentials. Indian exporters pay 5% extra on domestic transport, 5% extra on capital, 2% extra due to working capital blockage caused by GST, and 3-5% extra due to higher Real Effective Exchange Rate (REER). This 15% extra compared to developed country counterparts makes Indian products less competitive.
Government meets part of the cost disability through the export schemes which also need recast to conform to WTO norms. The biggest current worry is GSTN glitches that threaten to block the refund of GST paid for next many months. A reduction in cost disability and resolution of GST issues will set exports on the growth track.
Five: Protect interests of exporters in foreign markets. India has 500+ USFDA approved pharmaceutical units, yet Indian drug quality is always ridiculed and suspected. Big Pharma pushes the US government to apply the harshest possible measures to discourage entry of pharma products from India. Even high-quality products from India face routine rejection in China and many other countries. The government must create a war room to track such incidences. Trade experts posted in Indian missions must take up such issues with foreign regulatory bodies.
Six: Promote retail exports. Export of small quantities of customised products through courier is the new form of export taken up by thousands of students, housewives and small firms. They export handicrafts, jewellery, ethnic wear, decorative paintings, ayurveda products and so on. Considering the depth of India’s artisanal expertise, each product can become a billion dollar plus category.
But the retail export policy needs many changes. Today retail exports can take place from few airports, processing is manual, consignment value must be less than Rs 25,000. Firms must pay GST but get no refunds and export incentives. Retail exporting should be made as easy as selling in local markets.
Seven: Open large product exhibition centres cum markets. Consider facilities offered by the Yiwu market located in Zhejiang, China. It is the world’s largest wholesale market where over 1,00,000 suppliers exhibit 4,00,000 kinds of products. Yiwu has tied up with leading logistics firms for shop to door deliveries.
Order at Yiwu, receive at your factory with no hassle of transport and customs. Centres like Yiwu must be an important part of India’s market expansion, brand and relationship building strategy.
Consider India’s advanced R&D capabilities, diversified manufacturing skill set and extensive vendor base, and a trillion dollar export turnover is a target within reach. Meeting the target would strengthen brand India, create 25 million jobs in manufacturing and 50 million in services, and bring India on a par with the top manufacturing and exporting nations.
DISCLAIMER : Views expressed above are the author’s own.