Export Sector

Indian export growth has remained low mainly due to low scale of production, low productivity of labour, institutional friction. Any policy from government must encourage greater scale, specifically labour reform that allows easier separation from firms and workers. Textile, mobile and electronic industries can be catalyst for growth and employment if one encourage scale. Micro policy like trade agreement, simpler documentation procedure at port, improved credit access and infrastructure up gradation will help. The ongoing strain between United States of America and People Republic of China may be an opportunity as firms seek an alternative trade relationship. Labour abundantly India could be a good alternative.

Problems In Export Sector.

In the twenty five years since 1992, when India began liberalizing its trade regime, India’s share of world export rose from 0.5% in 1992 to 1.7% in 2017. The export share of India’s much celebrated export increases from 0.5% in 1992 to 3.4% 2017. To put these number in context, over the same period the Chinese share of merchandise export increases from 1.8% to 12.8%. Bangladesh also increases its share of merchandise export from 0.09% to 0.2% over the same period. Moreover, world export are 30% of its GDP while for India share of export to India’s GDP is 20%.

Lethargic pace of India’s export growth has constraint India’s growth potential as it failed to tapped into the global demand and supply. Many exporters especially in textile and other small and medium enterprises which provide huge jobs in the economy lags behind in technology and innovation to compete in global competition. India’s labour force lacked sufficient skills and labour regulation makes it hard for the firms to operate and employ labour. Lastly, our transport system are outdated, insufficient and badly planned and bureaucratic red tape makes it even worse to compete in global competition.

What’s need to be done?

The solution to low export lies in fixing both micro and macro issues. Macro refers to the issue with export while micro refers what need to be done at the lower level to boost the export.

Macro Issue Solution.

Scale – It is successful for a export sector. Hurdle to land acquisition, labour regulation, inadequate power and other infrastructure support must be provided to the firms as it promotes the firms to increase the scale of production which not only leads to the growth of economy, exports but also provides employment.

Fundamental labour reforms – Reforms are needed to encourage large scale, labour incentive production while maintaining the workers right. This will help tradition industries like textiles, footwear, leatherworks and wood products and boost employment in the economy.

Better transportation infrastructure – The government need to work on improving the integration of different mode of transportation with each other, introducing modern warehousing, custom and improving integration with logistics and industrial park.

Micro Issue Solution

Improving credit access – Credit flows to exporters have to be encouraged to grow in order to facilitate export. The majority of India’s exporters are SME’s with limited access to external financing. Bank credit is often their only source of financing. These flows must be stable, so that SMEs can plan their production properly.

Simplify the GST refund – GST refund to the small and medium enterprises must be robust to help the exporter. Refunds are still slow. This means that SMEs are typically under pressure because they may not have enough capital. SMEs are typical labour intensive and constitute percentage of total export have performed very poorly recently.

Tariff – Resists temptation to raise tariff rates in response to economic pressure such as sudden increase in import. As most exporter use imported inputs, tariff reduces the competitiveness of Indian exporter.

Global Integration of Electronic Industry – This industry has one of the fastest growing global supply chains one that India’s has not been able to take advantage unlike China, Indonesia, Taiwan. According to world bank India’s entry to global supply chain faces many hurdles like : (1) poor transportation infrastructure (2) low skill of workforce due to huge investment needs to be done on training of labour (3) complexity of land acquisition (4) lengthy and unpredictable import clearance.

Export is one of the very important components of economy and plays a very important role in economic growth of the country. It also provides immense employment and uplift millions of Indians from poverty. India’s has underperformed in export sector since liberalization in 1992 but all is not lost several needs to be taken so that we can perform to our potential in coming decade.