Clipped from: https://www.business-standard.com/opinion/editorial/future-of-exports-123041600858_1.html
India needs to do more to integrate with the world
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The trade data for March was released last week, and the headline news was that merchandise exports declined by 13.9 per cent year on year. On an annual basis, merchandise exports went up by 6 per cent to $447 billion in 2022-23. This somewhat dented the enthusiasm for growth in goods export. The total trade deficit for 2022-23, meanwhile, rose to $122 billion from $83 billion in the previous year. The Union Ministry of Commerce and Industry has said there will be healthy growth in exports, of about 14 per cent, over the year — driven in particular by good numbers for services and for electronic goods exports.
The detailed trade statistics comparing 2022-23 and the financial year before it make for interesting reading. Fifty per cent growth in electronic goods export stands out. But the amount of electronics goods export is still only about a quarter of engineering goods exports, which in fact shrank by 4.5 per cent year on year in dollar terms. Even more worrying, exports of labour-intensive cotton yarn and handlooms dropped by almost 30 per cent in dollar terms. That performance in goods export was flattered in particular by a 40 per cent increase in the value of petroleum products exported over the course of 2022-23 — an artefact of the oil price shifts and temporary arbitrage opportunities provided to Indian refiners by the Russian invasion of Ukraine.
Growth in services exports amid worrying trends in goods trade would seem to give credence to advice from some economists, including former Reserve Bank of India governor Raghuram Rajan, to examine how this can be put to use for India. Certainly, when it comes to achieving macro stability on the external account, ensuring the closer integration of the services trade is essential. However, as artificial intelligence and machine learning make rapid advances, it is clear that India-based IT-enabled services companies will also have to shift their business models. The government must allow them to find ways to integrate more closely into global supply chains — especially through the harmonisation of regulations. A modern data privacy law that meets the requirements of advanced export markets, and can ensure that India is seen as a data secure location by the standards of the European Union, for example, is a prerequisite for Indian ITeS to thrive in the coming years.
While services are essential as an export earner, export growth as a source of overall prosperity requires India to expand its footprint in the goods market as well. For this to happen, Indian policymakers need to ensure that a low and stable tariff regime is in place so that Indian producers can become part of global supply chains. India has raised tariffs across the board over the past few years. This has reduced the degree that India has been able to benefit from “friendshoring” or rebalancing away from China. Economist Amita Batra, writing in these pages, has pointed out that Vietnam reduced tariffs sharply in the previous decade, and thereby saw “an annual increase of 17.3 per cent in the foreign value added component of its gross exports”, indicating an increasing salience in global supply chains. As a consequence, while India’s share of world trade remained stagnant, Vietnam’s increased from 0.5 per cent in 2010 to 1.6 per cent in 2020. Indian policymakers must learn similar lessons if exports are to become a driver of jobs growth in India.