Brand ‘made in India’ and its gloomy state
Oct 11 2013
Our merchandise trade is becoming dependent on government dole
Economic historian Sean Harkin corroborated Maddison with his own findings that China and India together used to account for about 60-70 per cent of world GDP in the 17th century.
Prime minister Manmohan Singh has, on more than one occasion, talked about India’s economic decline under British rule till we became free in 1947. 66 years after Independence, India is struggling to find its lost place in the world economy. Data compiled by the World Trade Organisation (WTO) for 2012 and released in April this year say India accounts for just over 2 per cent of global trade and there are no signs of this being bettered.
India’s merchandise trade was worth $787 billion, really small in the global trade of $18,323 billion in 2012. So when our political masters trumpet the export growth for the third month in a row, it sounds pathetic. Many in the government conveniently forget that even this modest trade engagement with the world has come at a huge cost. Witness India’s huge trade deficit of $185 billion, that has thrown its macro-economy off balance. Also, the cost of engaging with the world is all the more crippling, given the huge export subsidies, duty remissions and interest subventions — together topping Rs 100,000 crore annually.
The larger point is that our merchandise trade is going nowhere, and is increasingly becoming directionless and dependent solely on government dole. Transaction costs of exports are still very high.
But one big change — a good one — has come about. In the pre-colonial era, India was a huge exporter of spices, cotton and other farm products to West Asia and eastern Europe from the Malabar, Coromandel, Saurastra and Bengal coasts. There is no denying that India has made definitive attempts to go up the value chain. But the results are meagre. India has failed to reach anywhere near taking a decent share of the high-value, high technology products market, much less corner the 5 per cent share of global trade the UPA-I grandiosely proclaimed it would. India does not figure even among the top 10 nations that cater to low-value, large-volume markets globally.
China is a study on contrast. With a decade of hard work and focused strategy, China last year surpassed the US as the world’s largest trading nation. In a way, it has managed to wrest back its lost glory as an economic giant.
Never mind the criticism it faces globally for its selective economic reforms, autocratic stranglehold of the politburo or whimsical currency liberalisation. It’s an amazing feat that China’s trade touched $3.87 trillion, a tad higher than $3.82 trillion of the US.
A couple of years ago, the then Chinese premier Wen Jiabao was in India to further his country’s trade agenda. When India pointed to its over $50 billion trade imbalance, Wen Jiabao shot a pointed question to Indian authorities, companies and exporters: “Give me a list of 10 large products that China can purchase and set the trade balance right.” The Indians had no answer. Vaguely, they mentioned medicines and high-end electronics without being specific about the products they could offer. But after the visit, China did resume buying Indian mangoes again.
This only demonstrates that India needs to beef up its list of exportable items and services and compete in world markets. What may also work is for India to scale down its dependence on the US and European markets and explore and exploit the large potential that South-South trade offers. It should push for larger engagements with African, South East Asian, Latin America and Caribbean trade blocs.
Over the past two days, Manmohan Singh was in Brunei and Jakarta to promote trade with the Association of South East Asian Nations (Asean) and east Asia at two different summits. India will have to really work hard to raise to $100 billion the trade with Asean within a year from $75.6 billion achieved in 2012. The Brunei and Jakarta summits must be used as a springboard to offer them services and investment opportunities in free trade agreements comprehensive economic partnerships.
India’s trade with 21-nation bloc in Latin America and the Caribbean continues to be under-explored at only $30 billion when there is every opportunity to double it. The farming and food processing industry, in this area, can be a fetching preposition.
African markets too remain unexplored, largely for historical reasons. Till the first Indo-African forum summit in 2008, no concrete efforts had been made to forge large-scale trade and investment partnerships with African nations. Even on this front, China moved in first.
Though India expects its trade with African nations to go beyond $90 billion by 2015, it’s still regarded a modest amount, given the large potential and shared history of colonial exploitation.
While aggressively marketing ‘made in India’ brand of goods and services globally as dependable, high quality and cost effective, a prerequisite at home, is the creation of huge infrastructure to support manufacturing dedicated to exports. Secondly, the country-specific trade strategy has not taken off in a big way, though a beginning has been made with the ‘focus product focus market’ scheme.
Thirdly, economic and trade diplomacy needs to take centrestage while engaging with the world. Fourth, dismantling the bureaucratic hurdles to furthering trade has to take top priority.
Above all, the economy at home has to be rectified at the earliest. Teresita C Schaffer, a senior fellow in India studies at the Washington-based Brookings Institution captured the sense effectively when she recently wrote, “India’s economic slowdown will act as a drag on its strategic objectives.”
Schaffer added: if India does not act now, not only its trade interests but growing role in Asia’s security extending from the Indian Ocean to the Pacific, will be hit. There couldn’t be a more a dire warning.