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Boosting Exports to India's Advantage

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December 10, 2017

What is the issue?

  • The midterm review of foreign trade policy 2015-20 has offered measures to boost exports.
  • However, India further needs structural changes for a higher and sustainable exports growth particularly in labour-intensive sectors.

What is the need?

  • Significance - Exports are an important driver of economic growth and help create much needed jobs for India’s growing workforce.
  • They played an important role in transforming countries such as South Korea and China in recent decades.
  • Therefore, India will need to work on increasing competitiveness to expand its exports share in the world market.
  • Opportunity - Due to rising wages and an ageing population, the long dominated labour-intensive manufacturing is moving out of China.
  • This should logically be an opportunity for India to expand its manufacturing sector.
  • However, this is not happening in a big way, and India is losing out to other Asian countries.
  • E.g. Vietnam and Bangladesh are becoming more competitive and are capturing the low-end manufacturing space being vacated by China.
  • On the other hand, India’s competitiveness, in some of the labour-intensive sectors, has actually declined over the past decade.

What should India do?

  • Efforts to increase competitiveness and focussing on the potential labour-intensive sectors will certainly give India an edge to fill the vacuum.
  • Logistics - Improving logistics to increase efficiency, both in terms of the time and costs involved is of utmost importance.
  • The measures in this regard as spelt out in the trade policy review should be taken forward and put into action.
  • Labour Laws - India has a large number of small enterprises.
  • However, they are not in a position to attain economies of scale and compete in international markets.
  • The prime reason for this is the regressive labour laws.
  • Firms in labour-intensive sectors will need more freedom to operate.
  • Also, more flexibility in land acquisition will also help the manufacturing sector.
  • Trade Policy - India has always supported rule-based multilateral trade negotiations under the WTO.
  • But, as progress has been limited in recent years, it should also look for opportunities to reduce trade barriers at the regional and bilateral levels.
  • Also, there is the threat of protectionism and rising automation among the world nations.
  • Given this, India needs to be prepared to protect its interests without compromising on its open trade policy.
  • Currency - Rupee appreciation in the recent period is getting to be disadvantageous for the exports sector.
  • Given this, it is crucial that India keeps the currency competitive and stable.
  • This is not to suggest that India needs an undervalued currency, but RBI should not allow the rupee to appreciate sharply.
  • India should thus work on these fronts to capitalise on the changes in the global trade scenario.

 

Source: Livemint

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