The article highlights the argument made by Arvind Panagaria about the primacy of export for the progress of the country in his new book India Unlimited: Reclaiming the Lost Glory.
GS Paper: Indian Economy
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Export remain key to economic growth
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India’s challenges in maintaining its viability against competitive economies
The article deals with the challenges India faces in attracting the relocating supply chains in the wake of the pandemic.
Is China losing its appeal
- Some labour-intensive industries, such as textiles and apparels, have been moving to Bangladesh and Sri Lanka as labour costs in China are increasing.
- But trends in other industries show that businesses have mostly remained in China.
- COVID-19 crisis has resulted in firms establishing relatively small-scale operations elsewhere.
- This is perceived as a buffer against being completely dependent on China, referred to as the ‘China +1’ strategy.
3 Reason for firms to remain in China
- 1) Starting an enterprise and maintaining operations in China are much easier than elsewhere.
- 2) Chinese firms are nimble and fast, which is evident from the quick recovery of Chinese manufacturing after the lockdown.
- 3) Many global companies have spent decades building supply chains in China, getting out would mean moving the entire ecosystem.
3 Challenges facing India
- This has led to intensification of competition among Asian countries to be ‘plus one’ in the emerging manufacturing landscape.
- India faces three challenges in this race.
1) Increasing domestic public investment
- First is the task of increasing domestic public investments, which have implications for both demand and supply sides.
- In India, even before the pandemic, the growth in domestic investments had been weak,
- This seems to be the opportune time to bolster public investments as interest rates are low globally and savings are available.
- Private investments would continue to be depressed, due to the uncertainty on the future economic outlook.
2) Reforms in trade policy
- India needs a major overhaul in her trade policy world trade had been rattled by tendencies of rising economic nationalism and unilateralism leading to the return of protectionist policies.
- A revamped trade policy needs to take into account the possibility of two effects of the RCEP:
- 1) Walmart effect: It would sustain demand for basic products and help in keeping employee productivity at an optimum level, but may also reduce wages and competition due to sourcing from multiple vendors at competitive rates.
- 2) Switching effects: It would be an outcome of developed economies scouting for new sources to fulfil import demands, which requires firms to be nimble and competitive.
- Trade policy has to recognise the pitfalls of the present two-track mode, one for firms operating in the ‘free trade enclaves’ and another for the rest.
- A major fallout of this ‘policy dualism’ is the dampening of export diversification.
- The challenge is to make exporting activity more attractive for all firms in the economy.
3) Increasing women’s participation in labour force
- While India’s GDP has grown by around 6% to 7% per year women’s labour force participation rate has fallen from 42.7% in 2004–05 to 23.3% in 2017–18.
- This means that three out of four Indian women are neither working nor seeking paid work.
- Globally, India ranks among the bottom ten countries in terms of women’s workforce participation.
- When Bangladesh’s GDP grew at an average rate of 5.5% during 1991 and 2017, women’s participation in the labour force increased from 24% to 36%.
- India could gain hugely if barriers to women’s participation in the workforce are removed.
- The manufacturing sector should create labour-intensive jobs that rural and semi-urban women are qualified for.
Consider the question “Relocation of supply chains offers an opportunity for India. However, it faces several challenges in attracting these relocating supply chains. What are these challenges? Suggest measures to deal with these challenges.”
Conclusion
India’s approach to the changed scenario needs to be well-calibrated. The stage is set for a new ‘Asian Drama’. What will be India’s role in it? Well, it will not be on the basis of past accolades, for sure.
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Economic implications of India opting out of RCEP
Even as India opted to stay out after walking out of discussions last year, the new trading bloc has made it clear that the door will remain open for India to return to the negotiating table.
Must read:
Try answering this also:
Q.Signing the Regional Comprehensive Economic Partnership (RCEP) agreement would have given more substance to India’s Act East policy. Analyse.
Why did India walk out?
- India decided to exit RCEP negotiations over “significant outstanding issues”.
- Its decision was to safeguard the interests of industries like agriculture and dairy and to give an advantage to the country’s services sector.
- The current structure of RCEP still does not address these issues and concerns.
How far is China’s presence a factor?
(1) Escalated tensions
- Escalated tension with China is considered to be a major reason for India’s decision.
- Major issues that were unresolved during RCEP negotiations were related to the exposure that India would have to China.
(2) Surge in imports
- This included India’s fears that there was “inadequate” protection against surges in imports.
- It felt there could also be a possible circumvention of rules of origin— the criteria used to determine the national source of a product.
- In the absence of this, other partner countries could dump their products by routing them through other countries that enjoyed lower tariffs.
(3) Inability for countermeasures
- India was unable to ensure countermeasures like an auto-trigger mechanism to raise tariffs on products when their imports crossed a certain threshold.
- It also wanted RCEP to exclude most-favoured-nation (MFN) obligations from the investment, especially to countries with which it has border disputes.
(4) No assurance of market access to India
- RCEP also lacked clear assurance over market access issues in countries such as China and non-tariff barriers on Indian companies.
- The agreement would have forced India to extend benefits given to other countries for sensitive sectors like defence to all RCEP members.
(5) Trade balances paradox
- India’s stance on the deal also comes as a result of learnings from unfavourable trade balances that it has with several RCEP members, with some of which it even has Free Trade Agreements.
- India has trade deficits with 11 of the 15 RCEP countries, and some experts feel that India has been unable to leverage its existing FTAs with several RCEP members to increase exports.
What can the decision cost India?
- There are concerns that India’s decision would impact its bilateral trade ties with RCEP member nations, as they may be more inclined to focus on bolstering economic ties within the bloc.
- The move could potentially leave India with less scope to tap the large market that RCEP presents —the size of the deal is mammoth, as the countries involved account for over 2 billion of the world’s population.
- Given attempts by countries like Japan to get India back into the deal, there are also worries that India’s decision could impact the Australia-India-Japan network in the Indo-Pacific.
What are India’s options now?
- India, as an original negotiating participant of RCEP, has the option of joining the agreement without having to wait 18 months as stipulated for new members in the terms of the pact.
- RCEP signatory states said they plan to commence negotiations with India once it submits a request of its intention to join and it may participate in meetings as an observer prior to its accession.
- A possible alternative for India is to review its existing bilateral FTAs with some of these RCEP members as well as newer agreements with potential for Indian exports.
- There is also a growing view that it would serve India’s interest to invest strongly in negotiating bilateral agreements with the US and the EU, both currently a work in progress.
Conclusion
- A country can never get into FTAs merely to provide its market to the partner countries.
- When we accommodate our partner countries, our objective is also to increase the presence of our products in the markets of partners, and India hasn’t been able to achieve the latter objective.
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How to improve the income and Productivity of Indian labour?
Slowdown in demand
- The bigger medium-term problem facing Indian economy is the slowdown of aggregate demand — private final consumption expenditure (PFCE), investment and exports.
- The largest component of GDP, PFCE, has declined as a share of GDP 68 per cent in 1990 to 56 per cent of GDP in 2019 .
- The consumption of the top socio-economic deciles (top 10%) has stagnated.
- Also the consumption demand of the rest of the demography ( 90%) — mostly in agriculture, small-scale manufacturing and self-employed — is not increasing due to low income growth.
How to increase income and productivity
- Atmanirbhar Bharat depends on improving the income and productivity of a majority of the labour force.
- First, incentivise the farming community to shift from grain-based farming to cash crops, horticulture and livestock products.
- Second, shift the labour force from agriculture to manufacturing.
- India can only become self-reliant if it uses its 900 million people in the working-age population with an average age of 27 and appropriates its demographic dividend as China did.
- That is possible if labour-intensive manufacturing takes place in a big way, creating employment opportunities for labour force with low or little skills, generating income and demand.
- India is in a unique position at a time when all other manufacturing giants are ageing sequentially — Japan, EU, the US, and even South Korea and China.
- Most of these countries have moved out of low-end labour-intensive manufacturing, and that space is being taken by countries like Bangladesh, Vietnam, Mexico, etc.
- India offers the best opportunity in terms of a huge domestic market and factor endowments.
Way forward
- We need Indian firms to be part of the global value chain by attracting multinational enterprises and foreign investors in labour-intensive manufacturing, which will facilitate R&D, branding, exports, etc.
- There is a need to aggressively reduce both tariffs and non-tariff barriers on imports of inputs and intermediate products.
- Removing these barriers create a competitive manufacturing sector for Make in India, and “Assembly in India”.
- Apart from trade reforms, further factor market reforms are required, such as rationalising punitive land acquisition clauses and rationalising labour laws, both at the Centre and state level.
- We also have to go for large-scale vocational training from the secondary-school level, like China and other east and south-east Asian countries.
Consider the question “Key to faster economic progress of India lies in income growth and productivity of its labour force. Suggest the ways to achieve these.”
Conclusion
The COVID-triggered economic crisis should lead us to create a development model that leads to opportunities for the people at the bottom of the pyramid. A competitive and open economy can ensure Atmanirbhar Bharat.
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Atmanirbhar Bharat Abhiyan 3.0 Package
Finance Minister has announced a fresh set of relief and stimulus measures for the economy worth ₹1.19 lakh crore, including a scheme to boost re-employment chances of formal sector employees who lost their jobs amidst the COVID-19 pandemic.
Assist this newscard with:
Atmanirbhar Bharat
- Atmanirbhar Bharat, which translates to ‘self-reliant India’ or ‘self-sufficient India’, is the vision of our PM of making India a bigger and more important part of the global economy.
- It doesn’t mean “self-containment”, “isolating away from the world” or being “protectionist”.
- It calls for pursuing policies that are efficient, competitive and resilient, and being self-sustaining and self-generating.
- The five pillars of ‘Atmanirbhar Bharat’ are stated as economy, infrastructure, technology-driven systems, vibrant demography and demand.
Highlights of the Package 3.0
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What is a Technical Recession?
Latest RBI bulletin projects contraction for a second consecutive quarter, which means the economy, is in a ‘technical recession’.
Nowcasts by RBI
- In its latest monthly bulletin, the Reserve Bank of India has dedicated a chapter on the “State of the economy”.
- The idea is to provide a monthly snapshot of some of the key indicators of India’s economic health.
- As part of the exercise, the RBI has started “nowcasting” or “the prediction of the present or the very near future of the state of the economy”.
- And the very first “nowcast” predicts that India’s economy will contract by 8.6% in the second quarter (July, August, September) of the current financial year.
- It implies India that has entered a “technical recession” in the first half of 2020-21— for the first time in its history.
What is a Recessionary Phase?
- At its simplest, in any economy, a recessionary phase is the counterpart of an expansionary phase.
- In simpler terms, when the overall output of goods and services — typically measured by the GDP — increases from one quarter (or month) to another, the economy is said to be in an expansionary phase.
- And when the GDP contracts from one quarter to another, the economy is said to be in a recessionary phase.
- Together, these two phases create what is called a “business cycle” in any economy. A full business cycle could last anywhere between one year and a decade.
Now try this PYQ:
Q.Consider the following actions by the Government:
- Cutting the tax rates
- Increasing government spending
- Abolishing the subsidies
In the context of economic recession, which of the above actions can be considered a part of the “Fiscal stimulus” package?
(a) 1 and 2 only
(b) 2 only
(c) 1 and 3 only
(d) 1, 2 and 3
How is the Recession different?
- When a recessionary phase sustains for long enough, it is called a recession. That is, when the GDP contracts for a long enough period, the economy is said to be in a recession.
- There is, however, no universally accepted definition of a recession — as in, for how long should the GDP contract before an economy is said to be in a recession.
- But most economists agree with the US definition that during a recession, a significant decline in economic activity spreads across the economy and can last from a few months to more than a year.
Then, what is a Technical Recession?
- While the basic idea behind the term “recession” — significant contraction in economic activity — is clear, from the perspective of empirical data analysis, there are too many unanswered queries.
- For instance, would quarterly GDP be enough to determine economic activity? Or should one look at unemployment or personal consumption as well?
- It is entirely possible that GDP starts growing after a while but unemployment levels do not fall adequately.
- To get around these empirical technicalities, commentators often consider a recession to be in progress when real GDP has declined for at least two consecutive quarters.
- That is how real quarterly GDP has come to be accepted as a measure of economic activity and a “benchmark” for ascertaining a “technical recession”.
How long do recessions last?
- Typically, recessions last for a few quarters. If they continue for years, they are referred to as “depressions”.
- But depression is quite rare; the last one was during the 1930s in the US.
- In the current scenario, the key determinant for any economy to come out of recession is to control the spread of Covid-19.
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`Financial institutions in India need more freedom
The article deals with the issue of credit and financial institutions in India. It also suggests the five changes needed in the lending financial institutions in India.
Financial institutions and credit in India
- India has labour and land but not enough capital.
- The case for foreign financial institutions is also simple — their technology, processes, and experience raise everybody’s game.
- India is open — foreigners own 25 per cent of public equity, 90 per cent of private equity, and Google and Walmart are UPI’s biggest volume contributors.
- India’s challenge over the last 10 years has been bank credit.
- Credit-to-GDP ratio is stuck at 50 per cent, banking concentration measured by flow has increased by 70 per cent, and bad loans exceed Rs 10 lakh crore.
Significance of lending financial institutions
- Foreign institutions are unlikely to lend when needed most and lend to small enterprise borrowers.
- Bank numbers have practically remained unchanged since 1947 despite world-leading net interest margins.
- Nationalised banks that have an eight-times higher chance of bad loan, would save Rs 35,000 crore annually with industry benchmarked productivity.
- regulators prioritise domestic stakeholders.
- The home bias for global bank lending is accelerating.
- UPI crossing 2 billion monthly transactions demonstrates how mandated interoperability, local innovation, and enlightened regulation help insurgents take on incumbents.
5 Changes required in lending financial institutions
- 1) The biggest impact lies in creating a nationalised bank holding company that replaces the Finance Ministry’s Department of Financial Services, has no access to government finances, and is governed by an independent board.
- 2) We must licence 25 new full banks over 10 years.
- 3) We must expect and empower the RBI to deal with bank challenges earlier, faster, and invasively, by reimagining post-mortems, granting listed bank capital induction flexibility and making regulation ownership agnostic.
- 4) We must explore new eyes for banking supervision that include differential deposit insurance pricing.
- 5) Finally, financial stability and innovation are not contradictory; let’s blunt regulatory barriers between banks, non-banks, and fintech.
Conclusion
The opportunities for India arising from the coming Asian century, China’s contradictions and China’s new inward focus strategy come not once in a decade but once in a generation. Let’s empower our financial services entrepreneurs to exploit this opportunity.
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Striking a fine balance in the review of RBI’s policies
Judicil review of central bank action could impact several stakeholders at the same time. This type of problems could be termed as polycentric problems. The article disusses the issues with judicial reviews in such cases.
Judicial review of central bank actions
- The Supreme Court is currently considering if the RBI should extend the COVID-19 induced loan moratorium and waive the accrued interest on interest.
- Earlier this year, the court struck down an RBI circular imposing a ban on virtual currencies.
- Last year, it quashed RBI circular that mandated banks and financial institutions to initiate insolvency proceedings against defaulting companies with significant loan exposures.
Unsuitable for adjudication
- Legal scholars have long recognised that certain disputes are inherently unsuitable for adjudicative disposition.
- The most influential arguments on this subject were advanced by the American legal philosopher Lon Luvois Fuller.
- Fuller compared polycentricity with a spider’s web — a pull on one strand distributes the tension throughout the web in a complicated pattern.
- Applied to adjudication, polycentric problems normally involve many affected parties and a somewhat fluid state of affairs.
- The range of those affected by the dispute cannot easily be foreseen and their participation in the decision-making process by reasoned arguments and proofs cannot possibly be organised.
- As a result, the adjudicator is inadequately informed and cannot determine the complex repercussions of a proposed solution.
Complexity of functioning of bank
- Disputes involving certain central bank functions are highly polycentric and are unsuitable for resolution through judicial review.
- For example, consider monetary policy function.
- This involves varying short-term interest rate to control supply and demand of money in the economy, which, in turn, influences economic activity and inflation.
- If judicial review supplants the central bank’s decision on this rate with the decision of the adjudicator, the repercussions would affect every single borrower and saver.
- Yet, the adjudicator can neither offer a meaningful hearing to all those affected parties, nor can he effectively process all the necessary information to determine an optimal solution.
- Evidently, disputes about monetary policy rate are highly polycentric and are better resolved outside the court.\
Which actions of banks should involve judicial review
- Not all disputes involving central bank functions are polycentric.
- For example, a dispute regarding imposition of a pecuniary penalty by a central bank could be resolved through judicial review.
- If the adjudicator finds the central bank to be correct, it need not interfere.
- If the adjudicator finds the central bank to be incorrect, it could modify or overturn the central bank’s decision.
- Clearly, judicial review could be effectively used to resolve bipolar disputes involving the central bank if they exhibit low polycentricity.
Need for striking the balance
- Monetary policy and pecuniary penalties are at two extreme ends of the polycentricity spectrum.
- There are, however, various central bank functions of intermediate polycentricity.
- Consider prudential regulations such as bank capital regulation.
- If judicial review supplants provisions of such regulations with the decision of the adjudicator, it may appear to directly impact only the banks and nobody else.
- But in reality, it could impact bank lending, which, in turn, would have complex repercussions on the entire credit market and risk-taking abilities across the economy.
- Effective hearing of all affected parties, directly or indirectly, would, therefore, be impossible.
- Consequently, some bipolar disputes involving the central bank may be too polycentric for meaningful resolution through judicial review.
- Judicial review could be purely procedural — the adjudicator could merely review whether the central bank’s action is within its legal mandate or not.
- The adjudicator could at most nullify a procedurally invalid central bank action, but may never supplant the decision of the central bank with his own.
Consider the question “Judicial review of the central bank actions could be different from the other judicial reviews. Examine the issues in such reviews by the judiciary.”
Conclusion
Adopting polycentricity test within constitutional jurisprudence would help sustain the legitimacy of judicial review while retaining the accountability of technocratic institutions such as the central bank.
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India’s catch-up evolution in techno-policy landscape
This newscard is an excerpt of the original article published in the DownToEarth.
Central theme: India needs to work out problems in old policies and develop new ones that ensure a rapid tectonic shift in India’s technological future.
Past lessons:
(1) From Agriculture
- The Father of the Green Revolution, Norman E Borlaug, was credited with the development of semi-dwarf, disease-resistant and high-yield variety of wheat that he introduced in India, Pakistan and Mexico.
- Led by Mexico, and soon followed by India, many countries adopted what is now commonly known as the ‘Green Revolution’.
- Even after suffering two famines and recovering from the colonial catastrophe, India transformed itself into a self-sufficient nation in terms of rice and wheat over the next two decades.
Sustaining GR with farm mechanization
- Nearing the end of this decade, farm mechanization in India stands at 40-45 per cent, which is low compared to the USA (95 per cent), Brazil (75 per cent) and China (57 per cent).
- Renewal of focus on farm mechanization was afforded only in the 12th five-year plan through a sub-mission on agricultural mechanization.
- Regional disparities aside, India has broken the inertia in adopting farm machinery when compared to previous decades that is largely owed to the current push by the Union government.
Still stranded with Land reforms
- Yet, the response came late as compared to other countries with similar levels of development and was off by decades when compared to advanced economies.
- Indian policymakers are still catching-up when implementing agriculture reforms, including land record digitization that should have been done and dusted by now.
(2) Agriculture to Industries
- After adopting resistant-variety cotton, India became the largest producer and second-largest exporter of cotton.
- But it lags significantly behind in exporting cotton fabric at 5-6 per cent of the global share as China leads at 51 per cent.
- Even with technical textiles, India’s production share is at four per cent and we suffer from an overall trade deficit.
Why do we lag?
- The earlier policies have not been revamped to reorient them into improving the technologically laggard and decentralized small-scale industries.
- The overall direction is guided by budgetary announcements and segregated schemes that often leads to ambiguity in policy.
- The new textile policy that is expected to provide for the economy of scale through textile parks is yet to be rolled out and the dedicated National Technical Textile Mission has only been recently announced.
- Both policies should have been in place a decade ago.
(3) Automobile sector
- India’s automobile sector is yet another example of playing policy catch-up.
- None of the Indian companies has any substantial market share in electric vehicle (EV) production, and retail sale of EVs in India has not registered any significant growth.
- The biggest hurdle to the growth of EVs in India, among others, is policy ambiguity in relation to conventional internal combustion (IC) engine vehicles that hamper strategic business decisions.
Beyond lofty roadmaps
- In June 2019, NITI Aayog claimed that only EVs would be sold in India after 2030, replacing conventional IC engine vehicles, a claim that was later refuted by the Union Minister of Transport.
- Policy ambiguity and lack of clear-cut directives on such a revolutionary technology can create disarray within the industry and on the broader strategic direction of the manufacturing sector.
(4) Gaps in data and privacy lawmaking
- The world is fast changing with the advent of the fourth industrial revolution, artificial intelligence (AI) and quantum computing (QC).
- Every dimension of technology will start interacting with each other as the physical operations will all be controlled and operated by intelligent and adaptive virtual systems.
Here too, India lags
- Advanced economies have already put data regulation guidelines in place. China and the United States are already far too ahead in their R&D and policy research into AI and QC.
- India developed its national strategy for AI only in 2018 and still lacks a full-proof futuristic policy on quantum computing.
- Revolutionary and disruptive technologies require full-proof futuristic policies and strategies for development, and not vision documents and segregated schemes.
Dealing with data
- As of November 2019, the Internet and Mobile Association of India put India’s active Internet users at 504 million; in 2020, India would register nearly 700 million internet users.
- We generate a copious amount of data, which, when combined with personal data from individual users in India, demand a new legal and paradigm change.
- India’s data fiduciary laws are still in their nascent stage.
- Data Protection Bill based on the recommendation of the Justice BN Srikrishna Committee is still pending with Parliament.
Not treating the symptoms
- Every day millions of Indians share intricate personal details and data over the internet; a majority of active users are unaware of the threats posed by an open-access to data.
- Political battles are slowly gaining traction on the internet by harnessing the loopholes in social media.
- Threats of state surveillance loom over millions of Indians and even now, any legal framework to protect data or privacy is missing.
What we can deduce from the above discussion?
- The Indian State heavily influences the outcome of the country’s technological development, largely due to the significant presence of PSEs, the dominance of public expenditure in R&D and the type of mixed economy.
- Therefore timely policy intervention is essential to drive technological development in India.
- Policies also require time to materialise and bear fruit, and thus far, India’s track record in implementing policies does not inspire confidence.
India isn’t always laggard
- India has been able to harness the potential of technology in the past by timely policy intervention. India was an early bird to its environmental policies and space technology.
- The United States set up its Solar Energy Research Institute in 1977 and India set up its Commission of Alternate Sources of Energy (CASE) in 1981.
- Today, India leads by example in the share of renewable energy in its power generation matrix. India’s space technology is another success story that doesn’t miss the public eye.
- Time and again, through innovation and research, Indian academia and industries have exemplified its willingness and capacity to change, and all it requires is the desired policy push.
Conclusion
- With the rapid pace of technological development, the Union government and states cannot set to lose out time, as they have done in the previous decades.
- India must hunt for new technological innovations, fund research into prospective applications and build policies to facilitate the adoption of new technologies.
- Ministries and public-funded research bodies must be re-tasked to actively seek out new and emerging technologies all across the globe.
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Economic lessons from Vietnam and Bangladesh
The article examines the emergence of Bangladesh and Vietnam as the major export hubs in the world and explains the lessons India could draw from it.
Context
- Bangladesh has become the second-largest apparel exporter after China.
- Vietnam’s exports have grown by about 240% in the past eight years.
Analysing Vietnam’s success
- An open trade policy, a less inexpensive workforce, and generous incentives to foreign firms contributed to Vietnam’s success.
- Vietnam’s open trade policy through Free Trade Agreements (FTAs) means trading partners do not charge import duties on products made in Vietnam.
- Vietnam’s domestic market is open to the partners’ products.
- Vietnam has agreed to change its domestic laws to make the country attractive to investors.
- Over a decade or so, large brands such as Samsung, Canon, Foxconn, H&M, Nike, Adidas, and IKEA have flocked to Vietnam to manufacture their products.
What explains Bangladesh’s success?
- In Bangladesh, large export of apparels to the EU and the U.S. make the most of the country’s export story.
- The EU allows the import of apparel and other products from least developed countries (LDCs) like Bangladesh duty-free.
- India, as a good neighbour, accepts all Bangladesh products duty-free (except alcohol and tobacco).
- Bangladesh may not have this facility in four to seven years as its per capita income rises and it loses the LDC status.
- Bangladesh is working smartly to diversify its export basket.
Lessons for India
- The key learning from Bangladesh is the need to support large firms for a quick turnover.
- Yet, most of Vietnam’s exports happen in five sectors, in contrast, India’s exports are more diversified.
- The Economic Complexity Index (ECI), which ranks a country based on how diversified and complex its manufacturing export basket is, illustrates this point.
- The ECI rank for China is 32, India 43, Vietnam 79, and Bangladesh 127.
- India, unlike Vietnam, has a developed domestic and capital market.
- To further promote manufacturing and investment, India could set up sectoral industrial zones with pre-approved factory spaces.
- There should be no need to search for land or obtain many approvals.
India should pursue organic growth
- Most of Vietnam’s electronics exports are just the final assembly of goods produced elsewhere.
- In such cases, national exports look large, but the net dollar gain is small. China also faces this issue.
- Country’s Export to GDP ratio (EGR) indicates its export capacity.
- Vietnam’s EGR is 107%, such high dependence on exports brings dollars but also makes a country vulnerable to global economic uncertainty.
- The U.S.’s EGR is 11.7%, Japan’s is 18.5%, India’s is 18.7%. Even for China, with all its trade problems, the EGR is 18.4%.
- Most such countries, including India, follow an open trade policy, sign balanced FTAs, restrict unfair imports, and have a healthy mix of domestic champions and MNCs.
- While export remains a priority, it is not pursued at the expense of other sectors of the economy.
- The focus is on organic economic growth through innovation and competitiveness.
Consider the question “While export is essential for the growth of the country, over-dependence on it and its promotion at the expense of the other sectors could do more harm to the economy than good. Comment.”
Conclusion
With reforms promoting innovation and lowering the cost of doing business, India is poised to attract the best investments and integrate further with the global economy without increasing its dependence on export.