Flexible trade policies essential to sustain economic growth
If exports are to achieve a quantum leap, as is being envisaged by policymakers, much more needs to be done to revitalize this sector
image for illustrative purpose
India needs to become more pro-active in entering into bilateral and regional trade pacts instead of relying on the beneficial effects of being a member of the World Trade organization. The hesitancy in opening up domestic markets must be removed, otherwise the logjam in concluding trade agreements will never end
India has been aiming to raise its minuscule share of world trade from the existing level of about two per cent to at least five per cent over the next five years. It has been stymied in recent times by developments like the Covid pandemic as well as global recessionary trends. But the outlook is much brighter right now as the latest news on the trade front shows a sustained upswing in exports over the first four months of the current fiscal.
Official data shows that exports have risen by 22 per cent in value terms during the four months from April to July this year, as compared to the similar period in the pre-Covid era of 2019. A record monthly high of 35.15 billion dollars was recorded in July, a rise of 34 per cent over July 2019. Though the annual target has been set at an ambitious 400 billion dollars for the current fiscal, export growth so far is on track to achieve the goal.
Other ambitious plans are reported to be underway to achieve a quantum jump in exports to key markets like the UAE, the US, and Singapore. In addition, the aim is to raise the share of exports in the country's GDP from 10.2 per cent currently to 15 per cent by 2030 for both merchandise and services.
At the same time the question is, whether the upward trend will be sustained in the long run or remain a short term phenomena. The export performance also has to be viewed in the light of the latest data for GDP growth in the first quarter of 2021-22 (April to June). The 20.1 per cent growth over this period was broadly in line with expectations given the fact that April and May were the peak months for the devastating second Covid surge. The double-digit growth also has to be kept in the perspective of the low base last year when GDP contracted by 24 per cent in the first quarter of 2020-21. Even so, the performance of the economy during the second Covid wave has been a distinct improvement over the same period last year. Despite a spate of regional lockdowns, manufacturing and commercial activity managed to continue, enabling the growth recorded in the first quarter. In this backdrop, the performance of the export sector appears all the brighter as the pace of exports continued to rise consistently even during April and May. But if exports are to achieve a quantum leap, as is being envisaged by policymakers, much more needs to be done to revitalize this sector.
In the past, India's failure to make a mark as an exporter has been due to many reasons, not least of which has been the comfort of an enormous domestic market available for most manufacturers. Added to this has been the rigors of red tape facing exporters including the rigidity of import-export policies. The scenario began to change after the 1991 reforms were launched and then Commerce Minister P Chidambaram revamped the trade policy of the day.
Yet exports have failed to achieve their potential over the past three decades. There has been a definite upswing both in volumes and value but sustained high growth has eluded the country. One of the factors constraining trade expansion has been the inability of successive governments to finalise free trade agreements in a time-bound manner. Many such FTAs have been languishing for years including the one with the European Union. Besides, India has failed to participate in regional trade groupings that might have been beneficial to its interests like Asia Pacific Eonomic Cooperation (APEC).
Recently it declined to become a member of RECP (Regional Comprehensive Economic Partnership), even after several rounds of negotiations. The reasons cited have been concern over third country origin imports as well as the looming influence of China over the trade grouping. These may have been valid but the fact is, India needs to become more pro-active in entering into bilateral and regional trade pacts instead of relying on the beneficial effects of being a member of the World Trade organization. The hesitancy in opening up domestic markets must be removed, otherwise the logjam in concluding trade agreements will never end. It is also essential to take a more innovative approach to diversify the export basket. Although it has been often pointed out that agriculture and allied goods have a vast potential for export growth, not enough has been done to tap this segment. India is already the top rice exporter in the world, the fourth largest cotton exporter and the fourth largest seafood exporter. But it has failed to make a mark in exports of wheat, fruits and vegetables though this country is one of the biggest global producers of these commodities.
In the manufactured products segments, on the other hand, the outlook looks promising owing to the production linked incentive (PLI) schemes. More products are likely to move into the export basket after projects under the PLI scheme go on stream. The results may not be visible immediately but higher output in future may lead to greater exports of goods in the auto, textiles, pharmaceuticals, telecom, and solar sectors. Trade policies thus need to become more flexible and innovative. A focus on agriculture is also likely to yield positive results even in the short run. It must be ensured, however, that these strategies are sustained over the long run to ensure that the upward trend in export growth does not remain a short-lived phenomena.
