Despite the sagging economic conditions in important markets like the US or the European Union (EU), India’s merchandise exports have continued to rise in the recent past. This is evident by looking at the recent figures released for June 2011 when exports rose by about 47 per cent in dollar terms.
The manufacturing sector accounts for more than two-third of merchandise exports from India. Six sectors, including gems and jewellery, textiles and garments, engineering goods, chemicals, leather, and leather goods and pharmaceuticals account for nearly 60 per cent of India’s manufacturing exports.
The department of commerce, in a recent strategy paper that sets the road map for increasing exports, looks at different ways to raise India’s share in global markets. New Delhi also wants manufacturing to contribute 25 per cent to GDP and is keen on boosting manufacturing exports from India over the next few years. An estimate of $200 billion of investments in manufacturing over the next five years is expected to help reach this target.
Investments are seen as an important stimulant for exports. Countries across the globe have used investments to spur exports. The secretary general of the Association of Southeast Asian Nations (Asean), Surin Pitsuwan, in a recent press interview said regional integration and investment will help spur economic growth in the region.
India, too, has been in the recent past looked at the bilateral economic agreements to cover investments as well. The India-Japan Comprehensive Economic Cooperation Agreement that came into force this year on August 1 also has a strong investment chapter. Japanese companies look at investing in India to make use of the agreement. The two countries have also been looking at building an industrial corridor that will help attract Japanese investments into the country to tap third-country markets as well.
For manufacturing to continue playing a strong role in the export basket there is a need to look at some crucial issues.
First is the need for India to evolve a policy for continuous upgradation of the workforce in the country to improve productivity as also inject innovation in the manufacturing sector. As of today, the focus for industry and the government seems to be on keeping labour wages low to remain competitive in global markets. There is a need to move out of being competitive only because of labour cost and move up the ladder through value addition and improvement in productivity of labour through skilling programmes.
The second need will be to target tariff and non-tariff barriers. For instance, in the negotiations with some important countries like the EU countries, it will be important to look at removing tariff barriers in sectors of interest like textiles and clothing. Given India’s strong presence in the global markets in this sector, it will be important to remove the existing problem of high tariffs in such sectors in other markets.
Another important issue that needs to be tackled to increase manufacturing exports is the issue of high transaction costs for exports from India. The World Bank’s Doing Business Report, 2011 states the cost of export per container in India is $1,055. This is much higher than our Asian counterparts. This directly impacts competitiveness of Indian goods in the global market. It is estimated that transaction cost in India is close to 10 per cent of the value of exports.
Finally, it will be important for industry to remain dynamic in its approach to markets. There has to be a continuous attempt to look at new markets and identify new products for export. Some of the emerging markets like Africa, South America or Asia provide opportunities that can be tapped over the next few years.
The focus on manufacturing exports has to be important for both the government and industry because services alone cannot help India continue on its high growth path. To achieve a good growth rate, there is need for continuous interaction between industry and the government. Policy decisions and business strategy have to go hand-in-hand if India wants to focus on improving the performance of the manufacturing sector. India has built a reputation as a large IT exporter, it will have to focus a lot more attention on the manufacturing sector if it has to build a brand in global markets.
The author is Principal Adviser with APJ-SLG Law Offices
