A series of “mini-bangs” on the supply side by the Modi government is coalescing into a big bang for Indian exports, which are likely to hit $400 billion this year. To sustain this and achieve the very ambitious export target of $1 trillion by 2027-28, India needs to quickly conclude FTAs with major trading partners and further improve the ease of doing business, writes India Inc. Founder and CEO, Professor Manoj Ladwa.
Indian Prime Minister Narendra Modi has set an “aspirational target” of $400 billion exports this financial year. And going by early trends, the aspirational is actually quite achievable – with some sweat.
What’s more, exports could emerge as a critical engine of growth for a country that, like much of the world, is still struggling to cope with the economic and social disruptions caused by the raging Covid-19 pandemic. As the many supply side measures taken by the government over a period of time begin to start paying dividends, the big picture suddenly looks bright once more.
The numbers so far look encouraging. India exported goods and services worth $95 billion in the first quarter (April-June) of the current financial year. That leaves a target of $305 billion, or an average of a little less than $102 billion per quarter, for the remaining three quarters of 2021-22. The first cut of the second quarter’s figures looks equally good. Exports hit a record $35.2 billion in July and $7.4 billion in the first week of August.
And given that a number of labour intensive sectors such as gems and jewellery, engineering and agricultural commodities are at the forefront of this surge, exports could truly become the engine that pulls India out of the Covid-induced economic slowdown.
Chandrajit Banerjee, Director General of CII recently said: “The PM has set an aspirational, but very much attainable target of $400 billion in exports for the year. At the current juncture when global value chains are in flux, the multi-fold strategies to promote exports coupled with a whole-of-government approach make this a moment for India to seize. The draft National Logistics Policy, boost for project exports and enhancing export insurance cover offer significant encouragement to catalyse exports to new peaks.”
The Ministry of Commerce, headed by Piyush Goyal, has been working overtime to push exports. It has conducted a detailed analysis of Indian exports of 31 commodities to more than 200 countries to identify opportunities to explore and gaps to fill.
Then, unlike earlier, all of India’s 140 embassies and 60 consulates now also function quite unapologetically as trade missions. Indian Commerce Secretary B.V.R Subrahmanyam recently informed that all these commercial wings attached to Indian missions abroad have a minister, counsellor or attaché who is mandated specifically to scout for export opportunities and report on issues that need to be ironed out for facilitating exports.
I understand that the government’s incentive schemes to refund taxes and cesses on exports is working fairly smoothly, though high logistics and power costs are coming in the way of Indian exports becoming even more competitive.
Providing tailwinds to Indian exporters, the disruptions in global supply chains and a concerted effort by many countries to move away from their over-dependence on China for the supply of a variety of goods is opening up a window of opportunity for India and other countries as well.
Experts feel this window will remain open for the next 18-24 months. That’s the time India has to cement its position as a great exporting nation.
The first item on the checklist, in my opinion, would be FTAs with major trading partners. India is not part of any trade bloc and this can prove to be a competitive disadvantage for Indian exporters vis-à-vis their rivals from countries such as Bangladesh, Vietnam or members of the ASEAN.
The country is negotiating at least 20 FTAs with countries and blocs like the US, the UK, the EU, UAE and several others. I understand that six of them are being fast tracked. This can’t happen a day too soon. The equation is simple: All other things remaining equal, countries with preferential tariff access to major markets will be able to sell goods at a cheaper rate than countries that don’t.
But India’s experience with FTAs has not been a happy one in the past. The solution to this is better negotiators and the involvement of industry at every step of the trade talks.
Then, it must also take urgent measures to cut its dependence on China for containers and also encourage the development of homegrown shipping lines to remove two crucial bottlenecks.
Other measures like quicker turnaround times at ports, faster and better logistics and further improvements in the ease of doing business are works in progress; these are already showing results and outcomes will only improve with each passing quarter.
Indian exports, which have been range-bound at around $300 billion for the past few years, now has a realistic chance of breaking out and rising to 20-30 per cent of GDP as is the case with developed economies.
The PLI scheme unveiled by the government for creating 13 champion sectors could add several hundred billion dollars to India’s export basket over the next five years.
In a style that has now come to characterise the Modi government, the Commerce Ministry is not holding back its ambitions. Subrahmanyam has gone on record to say: “We have laid down a roadmap on how we hit $500 billion in goods exports, and when we can hit $1 trillion. Our guess is by 2027-28, by very modest estimates, we should hit $1 trillion.”
That will take some doing, but given the schemes and plans in the pipelines, it’s well within the realms of possibility.