FinMin economist suggests China cues to boost exports

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As the commerce ministry gears up to present a new three-year export strategy, a senior finance ministry economist says India’s exports can grow by 30 per cent annually to take its share in world trade to 4 per cent in five years from 1.6 per cent today.

“This is not impossible, China has done it,” the economist, H A C Prasad, told Financial Chronicle. What needs to be done is give a big push to electronics, electrical and engineering exports. This will do the trick. Most of the top 100 globally imported items are from these sectors, and textiles, he reasons.

India has only five items with at least 5 per cent share in the top 100 list. Of these, only two items, diamonds and jewellery, have a 20 per cent share, according to Prasad.

“Till now our focus has been on exporting what we can, that is supply-based. We have to shift to a more demand-based approach of these items in which we have basic competence. In fact, there are many simple items in the top 100 list which we can focus on,” says Prasad.

Growing at 30 per cent is not difficult. India achieved an average export growth of 20 per cent during 2003-08. In two of these years the growth was 29 per cent and 31 per cent. India’s share in global merchandise exports increased from 0.5 per cent in 1990 to 1.6 per cent in 2012. At the same time China’s share increased from 1.8 per cent to 11.1 per cent. India’s services export share increased from 0.6 per cent to 3.2 per cent; China’s from 0.2 per cent to 4.4 per cent.

India has already come out with a new electronics policy aimed at attracting up to $400 billion in investments over the next 10 years. The policy is expected to raise exports as well as cut imports of electronics, the latter having grown substantially.

Last year electronics imports were worth $32 billion, next only to oil and gold. The government thinks that if electronics manufacturing is not stepped up electronics imports may touch $300 billion in 10 years.

The government aims to replicate the success of automobile manufacturing in the electronics sector also. The auto sector raised engineering exports manifold to become one of the fastest-growing export sectors. This year engineering export growth has dropped to 14.6 per cent; earlier years saw over 30 per cent growth.

The commerce ministry will surely fail to achieve $500 billion annual export target by March due to the global economic meltdown. It is now working out a strategy to reset exports target to earn more than $500 billion in the three years.

“There are lessons to be learnt from China, which kept its currency stable for decades. That made Chinese manufacturing competitive and helped rapid growth in exports. In India the rupee keeps on depreciating, hiding the deficiencies in our manufacturing,” according to Atul Joshi, MD and CEO of India Ratings & Research.

Unless our manufacturing is competitive, our exports cannot grow at the brisk pace of 25-30 per cent on a sustained basis like China’s, he says. Prasad does not subscribe to this view. “Economists have started saying that the recent pick-up in India’s exports and the fall in Chinese exports is due to the depreciation of the rupee and appreciation of the yuan, which is far from the truth.”

India’s merchandise exports are basically dependent on world GDP and world import growth. The effect of exchange rate changes is marginal, he says. What needs to be tackled is volatility in the exchange rate, which impacts exports.

More importantly, competitiveness must be enhanced by improving the ease of doing business in India and reducing both credit and non-credit costs. This should be an important agenda for the coming years, he adds. The cost of export from India is $1,170 per container; from China it is $620 in China and from the OECD countries $1070. India’s cost of import is $1,250 per container; China’s $615 OECD’s $1,090.

Improving trade facilitation will make India’s exports price competitive like China. Prasad also says the focus should be on speeding up free trade agreements and regional trade agreements.

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