Time to focus on export-led Indian miracle as US leans toward isolationism

In the mid-1990s, when Indian companies were struggling to handle an economic slowdown and high interest rates, I had developed a rule of thumb to filter high-quality companies: Does the company earn a significant part of its revenues from export? The logic behind this was straightforward. If a company could thrive in the fiercely competitive global marketplace, despite India’s red tape, poor infrastructure, and high taxes, it must be running high-quality operations. Of course, one had to be cautious. Back then, tax breaks and subsidies for export often led to inflated figures and the risk of “fake export”. But this could be tackled by examining the size of the business, the quality of the promoters, cash flows, debt, and other metrics. A simple focus on export would have thrown up the biggest gainers of the last 30 years: Pharmaceutical companies.

 

Can this logic be applied to a country? It is no surprise that all developed countries have a very strong export sector, especially the four-five that have actually become developed nations within one generation in the past 100 years. There are about 200 countries for which the World Bank and United Nations Conference on Trade and Development have compiled per capita export data. On that list, India is ranked 153rd, as against South Korea at 44th and Taiwan at 35th. If you think India is a services export powerhouse, India’s ranking in per capita services export is 89th out of 114, trailing nations like Malaysia, Turkey, and Thailand. Many highly promising economies of the past few decades, like Brazil, which were supposed to achieve rich-nation status but could not, have, coincidentally, poor per capita export figures. Even China, the world’s manufacturing powerhouse, is at 103rd; this could be because (apart from a large population base) its exports are of lower value than those of Japan, Taiwan, and South Korea.

 

It is obvious why prosperous countries rank high on export. Just like a company that excels in global markets, a country’s exports signal a range of economic health factors: World-class infrastructure, high standards of education, technological innovation, a well-functioning financial system, social cohesion, and a thriving private sector — all supported by thoughtful and consistent government policies. The exceptions are nations very richly endowed with huge natural resources and low population such as Saudi Arabia.

 

Economic planning can have many objectives — increasing domestic production, employment, reducing inequality, regional development, etc. The question is: What is the one thing that could drive India’s economic success? Gary W Keller and Jay Papasan, in their bestselling book The One Thing, argue that there is often one action that makes everything else easier or unnecessary. For most countries that answer is clear: Double-digit export performance for years together and climbing up the global value chain.

 

It is surprising that India has not followed this path even though there have been plenty of examples of export-led economic miracles from the 1950s closer home. Japan, South Korea, and Taiwan embarked on this strategy very successfully, and that was partly copied later by Thailand, Malaysia, and Vietnam. There is a lot of debate around the world on what ought to be the path for poor countries to become rich. Economists Daron Acemoglu and James A Robinson (Nobel Prize winners of 2024) emphasise the role of institutions in Why Nations Fail. However, real-life evidence shows the triumph of economic nationalism, under which infant industry is initially protected to acquire the building blocks of manufacturing but is soon forced to compete along with other national players — on the international markets.      

 

This model transformed Germany in the late 19th century; Japan learnt from this and employed the recipe in the last century, especially after World War II, followed by two Japanese colonies — Taiwan and South Korea. Finally, China, starting late, has taken export to a wholly new level, which now threatens large swathes of Western high-technology industries. Each of these countries started at the lowest end of the value chain (Japan was exporting raw silk in the late 19th century, then textiles, bicycles, cheap electronics, cars, and so on) and moved up the technology ladder.

 

While India has wasted three decades in muddling along, even after the so-called economic liberalisation of 1991, under the Modi government, there is a faint element of economic nationalism in schemes such as production-linked incentives (PLI) and Make in India. But for these schemes to be effective, it has to use the playbook of export champions. The incentive has to be linked to export, not just import substitution or higher production. Initially it will be hard, which will automatically reveal what needs to be done to make each of the sectors export-competitive. In each of the four countries that have recorded extraordinary growth, the government worked with the manufacturers to help them import technology, arranged cheap finance, culled the weaker players, and relentlessly imposed export discipline. India should learn from this and adapt. 

 

Fortunately, India already has many of the ingredients for success. One, in sectors like pharmaceuticals, chemicals, steel, and engineering, and services, the country has both domestic scale and a global competitive edge. Two, the timing too is right. So far, the Third World has been cowed down by the “Washington Consensus”, a recipe consisting of fiscal discipline, trade and financial liberalisation, privatisation, etc. Now the United States itself has taken a sharp turn towards isolationist policies of economic nationalism and protectionism. Hence, while it is late, the timing is even better now to focus on an export-led Indian miracle. It is the only route to a Viksit Bharat.

 

The author is editor of www.moneylife.in and a  trustee of the Moneylife Foundation; @Moneylifers