Running ahead of government targets for the fiscal, Indian exports crossed the $200 billion mark during the first eleven months of 2010-11. Exports grew at the rate of an impressive 49.8 percent in the month of February taking the average cumulative growth for the whole period 31.4 percent above those in 2009-10.More importantly, the growth has not only been well diversified among the products contributing to exports basket of the country but it has also shown a shift in favor of technology intensive manufactured goods. The growth, achieved at a time when the world economy is still recovering from the disastrous fallouts of economic crisis in American and major European market has provided a new optimism in the economic policy making circle and the government has now set an ambitious target of doubling exports to $500 billion in three years.However,despite the significant increase achieved in exports, rapid increase in import requirements of a growing economy widening the trade deficit puts enough responsibility in the hand of policymakers to further restructure the export policy to achieve macroeconomic stability and poverty reduction the most important aim of Indian economic development.
Indian Export Strategy: Post Independence
Rising out of colonial subjugation under the British rule export policy of the new government in the initial years of independence has been termed as that of "export pessimism" by the critics. In line with the development thinking for developing countries prevalent at the time, it was argued that primary exports from developing countries like India faced a stagnant world demand along with a secular decrease in prices over time deteriorating their terms of the trade. In order to achieve a better return on their exports in future it was argued that India should first concentrate on establishing the industries that tend to substitute goods imported from abroad. Economies of scale obtained in production along with the experience gained in serving the large domestic market was expected to contribute larger export volume and value in future years. Export policy, therefore became subjugated to the larger economic goal of import substitution based industrialization. The government sought to control the heavy foreign exchange expenditure necessitated by the new development strategy for the import of capital equipments, machinery, raw-materials, intermediate goods and technological know how etc through severe import restrictions and an overvalued exchange rate which further worked against the export sector. As a result while the world trade expanded rapidly during the 50s and 60s and several developing countries showed a large increase in their shares exports from India stagnated. However by the time of fourth five year plan the regular Balance of Payment crises forced the government to have a re-look on its export policy and the currency was devalued in 1965 and export subsidy scheme introduced next year. After the oil-crisis in 1973 the government started according higher priority to the exports with incentives enhanced for export production and a more favorable currency regime.
Policy Changes post reform
Trade reforms formed an important component of the wide ranging economic restructuring carried in the country post the 1991 Balance of Payments crisis. Increasing competitiveness of domestic exports in the international market was considered an important component of the stabilization and structural programme.Trade policies were further restructured with India’s accession to World Trade Organization which called for elimination of quantitative restrictions and restructuring and reduction of import tarrifs.Exchange rate management was progressively liberalized to reflect market forces. Import liberalization aimed at making Indian industrial sector face the international competition to increase their efficiency of operations. The period witnessed promotion of exports being integrated as an integral part of industrial and development policy with increasing emphasis on technological upgradation, large plant size and greater exposure to domestic and international competition. The period also witnessed the beginning of the formulation of long term perspective trade policies in contrast to the short term visions of the earlier plan. The government has also drawn of various schemes like those of Trading Houses, Special Economic Zones, Export Oriented Units, Agricultural Export Zones and identification of specific thrust areas to promote exports. Exports in the country also achieved a major boost through making inroads in hitherto unexplored countries and trading agreements with various nations.
Performance of the Export Sector
Rising from a level of $1.2 billion in 1952-53 Indian exports grew to $2.1 billion in 1971, amounted to $17.85 billion in 1991 and now stand at a record high of $ 245.86 billion in 2010-11. There has been a significant change in the commodity composition of exports with gradual decline in the share of primary products including agriculture and a movement towards the high technology manufactured goods. While the share of primary products in total exports declined from 44.2 percent in 1960-61 to 9.3 percent in 2009-10, the share of manufactured goods have increased from 45.6 percent in 1960-61 to 68.9 percent in 2009-10.Even among the manufactured products share of traditional items like Cotton yarn, fabrics, jute and lather products have declined the share of engineering goods, chemical and allied products, machineries and gems and jewelries have witnessed significant growth. There has been a significant increase in the export of services sector in the country which touched a record high of $108 billion in 2008-09.With more than 130 Special Economic Zones exporting in the country, SEZs now contribute to 30 percent of the total exports. India’s export growth at more than 20 percent per annum since 2000 has been significantly larger than world export growth rate.
Problems in the export sector
Despite rapid growth achieved in the exports sector in recent years India continues to be a marginal player in the world market. The country contributed to less than 1.4 percent in world exports in 2009-10, much below the contributions of relatively smaller economies like Korea, Singapore, Hong Kong and Taiwan. Export growth has also failed to meet the increasing import demands caused by the growth in the economy. Trade deficit widened in the country from $9.4 billion in 1990-91 to $12.4 billion in 2000-01 and further $104.8 billion in 2010-11. The Indian experience is further belittled by the rapid strides made by the neighboring giant China which commands an impressive share of 10 percent in world exports and runs a trade surplus of more than $20 billion with India, achieving a four-fold increase during 2005-10. It is argued by the critics that the country has not done enough policy reforms to promote the export sector. In particular they point towards the cumbersome labor laws, infrastructural constraints, restricting Foreign Direct Investment Policy, tariff structures, lack of technology and low investment in Research and Development contributing to the poor export performance. Exports from the country face a dual competition from the high labor-productivity developed world on the one hand and low cost competitors on the other.
New Export Strategy
In order to develop a long term vision in the foreign trade sector the government has been releasing long term vision documents covering five year periods since 2004.The ministry of commerce and ministry in its mid term review to policy document 2009-14 has set a target of achieving a compound average growth rate of 26 percent to double country’s merchandise exports to $500 billion. The new strategy calls for building on country’s strength in sectors with large growth potentials like engineering goods, chemical industries, Pharmaceuticals electronics etc to achieve a greater share in world exports. It also aims at encouraging light manufacturing exports with higher value addition and high employment generating sectors like gems and jewelries and agricultural products. The government also intends to undertake more country specific trading agreements and discover export opportunities in these markets for new products. In order to achieve higher values for country’s export the importance of moving up the value chain in production has been realized and the new policy calls for greater investment in research and development and thrust for quality upgradation.Need for reduction in trade related transaction costs through streamlining of laws and procedures and greater credit support to the exports sector has been advocated. Need for removing the infrastructural constraints like roads, electricity, railways, and port facilities have been realized in the policy document.
The way ahead
Reflecting resilience of the Indian exports sector the recent economic recession in the major world markets produced a relatively little dampening effect on growing Indian exports. Nevertheless, achieving a corresponding share in world exports according to its economic size remains a major challenge for Indian exports. In 1990, shares in world exports of China and India were 1.8 per cent and 0.5 per cent respectively and in 2009, their respective shares stood at 9.7 per cent and 1.3 percent. Even attaining half the level achieved by Chinese exports the resultant impact on manufacturing and employment opportunities in the country would be enormous. There is also a significant need to achieve substantial diversification in export baskets in tune with the world demand to draw growing benefits from the international trade. A further liberalization to financial flows would lead to greater investment in export sectors. India needs to utilize its diversified industrial base, low wage costs, skilled man power and demographic advantages to increase its share in the world export markets. A rapid growth in exports combined with policies to make the export sector more integrated with the domestic economy will go a long way in sustaining inclusive growth.
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