Boosting Exports in India

What is the issue?

Why are exports crucial for India now?

One of the main reasons for the slowdown in India in recent years has been its failure to generate export momentum, especially merchandise exports.
So, exports have fallen significantly in relation to gross domestic product (GDP).
Reversing these trends and achieving an export boost is crucial for the Indian economy to work its way out of the current slump.
Notably, every country that has grown rapidly has been a successful exporter.

How is China’s export slump utilised by other countries?

It is said that an export thrust is difficult when global trade is not doing well.

However, notably, when garment trade is stagnant, Vietnam, Indonesia and Cambodia have recorded rapid export growth.
Bangladesh too has continued to pull ahead of India.
The reason is that these countries have taken up the slack in China’s exports to their advantage.
Beijing used to export $20 billion worth of garments every month; this is now down to $12 billion.
India made use of this to a relatively minor degree.
In comparison, Bangladesh, which used to export only 60% of what India did, now exports twice as much as India.
[The irony is that Bangladesh sources cotton, yarn and fabrics from India.]
Vietnam too has overtaken India and is now comfortably ahead.

How significant can garment exports get to be?

Garment exports offer a solution to complex problems, beyond helping to narrow the trade deficit.
Employment - The textiles/garments sector already accounts for about a third of total manufacturing employment.
So, promoting garment exports could provide the single greatest boost to jobs in manufacturing.
Women - Most employees in the garment industry are women whose reduced participation in the labour force has become a matter of concern.
Consumption - Garment sector is more employment-intensive than any other large industry.
[It is 10-fold or more when compared to the automobile/engineering sector.]
So, much of the industry’s sales turnover therefore goes towards wages.
This, resultantly, boosts domestic consumption demand, which is notably a key priority now.

What lies ahead?

Chinese exporters face the threat of US tariff hikes (not yet applied to garments).
So, the opportunity is still there for India to take advantage of the slump in China’s exports.
In recent years, the government has helped by introducing flexible labour rules.
It has also contributed to provident fund accounts (thus partially closing the wage gap with Bangladesh).
India’s latest offer, of a 17% tax rate to new manufacturing outfits, closes another gap.
But, exporters have to deal with other such challenges as poor infrastructure and time-consuming port processes.
Equally important is correction of the rupee’s overvaluation.
A correction of the rupee’s blown up value is not only feasible, but it is urgently required if rapid export growth is to return.

Source: Business Standard