Post-Covid, India is set to be an export-led economy and a manufacturing centre for the world
By B. Shekhar
There is an old adage: “Today’s mighty banyan is just yesterday’s seed that held its ground…”
A global shift is expected after the pandemic ebbs by Q3 FY2021. There will rise a new hegemon. Nations will realise the consequences of dependency on import of essentials and reassess how far they should prepare for self-sufficiency to meet any such crisis in future. This will redefine the industrial landscape of many countries.
In this India is likely to play a crucial role in reviving the world economy. One positive spin-off of Covid-19 for India is that all major nations which were overtly dependent on China for manufactured goods now consciously want to shift towards India. The UK, US, Germany, France, Australia and several Southeast Asian and Middle East nations have already prepared blueprints to move business bases to India for sourcing goods and services.
In the new world order, India will turn into a world sourcing hub for goods and services, which means the GDP growth projected by a few global consulting firms at 9.5 percent post-2022 will be a reality.
China is being blamed for the coronavirus. This has resulted in the nation losing its credibility and status in the socio-economic and political spheres. In fact, many responsible nations are even accusing China of deliberate sabotage in the form of the coronavirus. A direct effect of this has been that a lot of flourishing business entities across the globe just got snuffed out for no fault of theirs, increasing unemployment across the world.
The maximum increase in exports by value was to the United States ($6.7 billion), the United Arab Emirates ($2.4 billion) and Belgium ($826 million).
But all these are plus points for India which until now was languishing in the backdrop despite possessing the requisite high-end capabilities and mechanisms to cater to global requirement. It is time India seizes this opportunity and moves at lightning speed to capitalise on the situation.
India is already moving in this direction in a highly focussed way. One indication of the new world order in which India is slowly but surely turning into a sourcing hub is the gradual increase in exports.
India’s exports have been rising for the past few months, signalling an increase in demand for goods and services as global markets rebound. The country’s exports are likely to rise further as global trade gains momentum.
Merchandise exports from India hit a record high of $35.2 billion in July 2021 – the highest-ever monthly figure in the country’s history. It is an increase of 47.91 percent over the $23.78 billion in July 2020 and an increase of over 34 percent over the $26.23 billion in 2019. Exports crossed $35 billion in July 2021 for the first time on the back of global recovery after the pandemic disrupted world trade. Exports have remained above $30 billion for the fifth consecutive month in July which is very encouraging. India’s overall exports between April 2021 and May 2021 were estimated at $98.29 billion.
Piyush Goyal, commerce minister, recently indicated that the government is working for simplifying the Special Economic Zone rules
The top five commodity groups that India exported during July 2021 were petroleum products (215 percent), gems and jewellery (130 percent), cereals (70.25 percent), man-made yarn and fabrics (58 percent) and cotton yarn and fabrics (48.02 percent). The maximum increase in exports by value was to the United States ($6.7 billion), the United Arab Emirates ($2.4 billion) and Belgium ($826 million).
Federation of Indian Export Organisations (FIEO) President S.K. Saraf said that the exports growth was encouraging, and order books of exporters were healthy. “I urge the government to look into the issues of MEIS (merchandise export from India scheme) which will further augment and encourage exporters to increase their footprint,” he said.
Exports are extremely important for the overall growth of a country’s economy and for global trade, and can have direct spin-offs for multiple business verticals. For example, exports offer millions of small business owners and corporate firms access to a wider global market, where they can sell their products. The amount of merchandise a country exports plays a crucial role in revenue generation and economic growth. Economists have highlighted that higher exports help nations grow rapidly in terms of GDP and domestic output.
The rising exports are a good sign for India but experts say that the government needs to take several more steps to boost the country’s export sector. It should introduce policy initiatives like tax sops on specific exports, interest subvention schemes and signing of free trade deals.
The government has already planned several measures. Piyush Goyal, commerce minister, recently indicated that the government is working with the Finance Ministry’s Revenue Department for simplifying the Special Economic Zone (SEZ) rules which will substantially increase exports. Besides, he said, the government will soon notify the rates and reveal how various sectors will be compensated for various taxes, as per the Remission of Duties and Taxes on Export Products (RoDTEP) scheme which again is a gamechanger that will encourage more entrepreneurs to look at exporting their goods and services.
Productivity Linked Incentives (PLI) schemes will be taken up to improve capacity and capability, and India is pursuing FTAs with likeminded nations who share its values of democracy, transparency, and rule of law. The aim is to make Brand India a flagbearer of quality, productivity, talent, and innovation. India is becoming a hub for IDEAS – Investment, Demand, Exports, Aspirations and Start-ups.
According to Commerce Secretary B.V.R. Subramanian, the government is working towards achieving another all-time high of $400 billion merchandise exports by the end of the current fiscal year. The government will try to achieve a target of $500 billion in FY23 and $1 trillion merchandise exports annually in the next five years. He said that several labour-intensive sectors have seen rapid export growth. “The exports in the engineering goods sector rose by $5.2 billion over Q1 FY20. Likewise, rice exports growth has remained positive since May 2020 and rose by 37 percent in Q1 FY21, compared to Q1 of 2019-20,” he said.
Several studies have indicated that India along with other emerging economies will emerge as a key business and supply chain hub.
Recent Reserve Bank of India (RBI) data indicates revival of landing of capital goods, raw materials, and intermediates from abroad in July 2021. Similarly, several key sectors are seeing an uptick as demand for electricity, crude oil, cement, and steel show a sudden spike. This is a clear indicator of the gathering of pace of the wheels of domestic industry. It is an important indicator of the dynamic macroeconomic situation and exports potential.
In recognition of these early signs of a turnaround, foreign investors have reposed confidence in India’s medium-term growth prospects. The World Investment Report (WIR) 2021, published by the United Nations Conference on Trade and Development’s (UNCTAD), revealed that India became the world’s fifth largest recipient of foreign direct investment (FDI) in 2020. Already, gross FDI inflows have amounted to $32 billion in the first five months of 2021, close to 37 percent of the entire inflows in 2020.
Role of States in Increasing Exports Basket
There are several key states which have massive potential to export home-grown products. Take, for example, the Northeastern states. The entire belt is renowned for its exotic orchids, medicinal value plants, fruits and vegetables, art and artefacts, exquisitely woven textiles and much more. But not much is exported.
The government has made huge strides in facilitating an enabling business ecosystem through liberalisation of FDI, ratifying the World Trade Organisation’s Trade Facilitation Agreement, and other such reforms since 2014, which has improved India’s integration into the global economy. That is the reason Export Preparedness Index (EPI) 2020 examines the export ecosystem of the states and Union Territories to further enhance India’s export preparedness to meet the needs of the post-Covid global economy. Further, improving the export competitiveness of states can also mitigate regional disparities through export-led growth and the consequent rise in living standards.
Experts feel that it is essential to tap into the capabilities of states by plugging the gaps in policy and infrastructure. It is also necessary that developed states expand their focus towards improving R&D infrastructure. R&D plays a significant role in improving the quality of products to match up to international standards, and enables greater innovation and thereby increases the potential for export of products.
India Ready to Seize Export Opportunities
There are continuous geo-political disturbances due to various externalities and compulsions. This has left global manufacturers seeking more diverse, resilient, and economically viable supply chain partners. Now that most businesses have resumed operations post-Covid, they must navigate increasingly challenging complexities such as risk exposure, tax and regulatory compliances, digital and analytical capabilities and so on to sustain and thrive in the new world order.
The government, which introduced several significant reforms this year, realised this was an opportune time to attract companies for whom supply chain relocation has become a top priority with the experience of Covid-19 in 2020. Firms from countries including the US, Japan and South Korea have already expressed interest in shifting their production facilities to India. The government’s investment-driven policy measures along with corporate tax cuts, investment in infrastructure under the National Infrastructure Pipeline (NIP) and business-friendly changes to labour laws are likely to further underpin the country’s attractiveness as a manufacturing hub.
Several global studies have indicated that India along with other emerging economies will emerge as a key business and supply chain hub. While the pandemic has spurred interest in India’s domestic manufacturing ecosystem, the journey has only just begun. Providing easier access to land, boosting R&D and legal infrastructure, and further investment in re-skilling efforts are just a few of the prerequisites for India to achieve its goal of becoming a key export nation and a global manufacturing hub.
(The author is a Bengaluru-based business journalist associated with IMS Foundation.)