The Challenges in Reviving Exports
Deep reform the key when global growth wanes
Trade minister Nirmala Sitharaman knows her onions when it comes to trade. But that does not mean that she can do much about the steady fall in India’s exports for one year and a quarter. Weakness in the global economy is not something an Indian trade minister can remedy. Nor are the problems in infrastructure, inverted duties for components and finished goods in several sectors and a fragmented domestic market that creates long delays at state boundaries when a container wends its way from factory to port amenable to solution at her end. India needs wide-ranging reform across several sectors for export performance to turn robust.
The impact of declining exports can be exaggerated. Both petroleum and gems and jewellery, two big sectors of Indian exports, have a large import component, which also has come down sharply. What ultimately matters is the value added, which is impacted far less than what prolonged export decline suggests. That said, there is scope for remedial action. One of the obvious reforms India needs is an integrated, harmonised goods and services tax, which would speed up freight movement and make it easier to make sure that export prices do not carry a burden of taxes and duties. A less obvious reform in the context of exports is to clean up political funding. The corrupt practice of inflating costs, whether of power or steel plants or of coal imports, and siphoning money off banks and consumers, weakens the entire economy and pushes up costs to make exports non-competitive. This scale of corruption is needed for and enabled by the practice of funding politics with the proceeds of corruption. Once political funding becomes transparent and accounted for, project costs and input prices would shed padding.
That leaves trade diplomacy. India is on the right track when it embraces trade facilitation for goods and then demands similar facilitation for services. India needs to take the lead to breathe life back into the World Trade Organization, joining its plurilateral agreements and pursuing requisite domestic reform.