India’s Export Growth – A Case of Missed Opportunities?

India’s growth story started about four decades back but picked up momentum from the late 1990s. This period coincided with the IT boom. The Y2K problem, among others, catapulted India as a significant software exporter. It was during this period that India graduated from the Hindu rate of growth to a more respectable figure.

Was such an export-led growth strategy restricted only to India? A look at the growth story of some of the East Asian Tigers like Japan, South Korea, Taiwan and more recently Vietnam and Bangladesh would reveal the success of such a strategy, at least in the Asian context.

In a Working Paper titled “India’s Export-Led Growth: Exemplar and Exception” authored by Shoumitro Chatterji, Pennsylvania State University and Arvind Subramanian, Ashoka University, the authors have done an in-depth analysis of India’s performance viz a viz some of the other Asian countries. In this article, we have attempted to find out if India has achieved its optimum export performance based on the data available in the Working Paper.

How to measure Growth?

In the context of a country, the change in the Gross Domestic Product (GDP) is taken as the yardstick to measure growth. While GDP growth is an economic measure, the objective of every country is to ensure that the benefit of growth percolates down to all strata of the society thereby improving its income.

India has only partially achieved this objective. While there has been an increase in the income of some strata of society, others have either remained static or have seen a decrease. Since India follows an export-led growth strategy, it would imply that more needs to be done on the export front to increase growth and its percolation down to all levels.

India’s Export Sectors

Major sectors contributing to India’s exports are – Agriculture, Minerals, Low skill Manufacturing, Apparel, textiles, leather and footwear, High Skill Manufacturing and Services. All the sectors stated above require labour of varying skill levels. Global Market Share (GMS) index is the measure of export performance and changes in the GMS is defined as the excess growth of a country’s export over world exports.

Changes in the Global Market Share of India exports during the period 1995 to 2018 were Minerals at 9.2%, High Skill Manufacturing at 7.2% and Services at 8.8% while Agriculture, Low Skill Manufacturing and Apparel, textiles, leather footwear etc registered an increase of 3.1%, 4% and 2.5% respectively. Change in Global Market Share (GMS) is defined as excess growth of Indian Exports over world exports.

Changes in the Global Market Share by major sectors from 1995 to 2018. Agriculture 3.1%, Minerals 9.2%, Low Skill Manufacturing 4%, Apparels textiles leather footwear 2.5%, High Skill Manufacturing 7.2%, and Services 8.8%. Three sectors which utilise the maximum Low Skill labour have registered the lowest change in GMS.

Despite having abundant low-skill labour and resources the low-skill manufacturing export is very low whereas high-skill manufacturing and services have been high and increasing. One of the vulnerabilities of over-reliance in the export of high-skill manufacturing goods and services is the supply and availability of skilled labour which is limited making the reliance unsustainable over the medium term.

Utilizing High Skill labour has outperformed those needing Low Skill labour. Major export from high-skill manufacturing goods and services despite having an abundant supply of low-skill labour. One would have expected more low-skill manufactured goods like textiles, garments, footwear, leather goods, agricultural products etc.

Given India’s large population and endowed with relatively unskilled labour it would be expected that India’s presence in unskilled labour manufacturing would be broadly commensurate with those endowments. For checking whether India’s low-skilled manufacturing goods are proportional to its share of global low-skill labour a like-to-like comparison of 50 major low and middle-income exporting countries' production of low-skill manufacturing was done. The results revealed that if India were to produce in line with its labour force the size of the domestic textiles and garment sector should have been $174 bn. Actual production was $34 bn thereby missing out on $140 bn worth of production with its impact on GDP. A similar exercise on exports revealed a missing export of $60 bn. There are corresponding figures in the case of leather products, footwear and agricultural products which are not considered in the report. This is a severe indictment of India’s business model where despite being endowed with a demographic advantage we have let go of the opportunity.  Bangladesh and Vietnam roughly export in line with their endowments and have been doing so since 1995.  

Between 1995 and 2018 India ranked third in the world in terms of manufacturing export growth behind China and Vietnam growing at an annual average of 13.4% against China’s 15%, The growth came about not just through services but also the manufacturing exports which grew by an average 12.1% annually. During this period Vietnam locked an overall growth of slightly over 15% with manufacturing exports alone clocking close to 20% far outstripping even China

India’s export performance is services-driven and not driven by manufacturing. Exports have been highly correlated with and critical to India’s growth over the last three decades. India has turned inward and has gone for protectionism. The policy towards development strategy is through import substitution which has been sustained through tariff increases in the region of 5% over the last few years affecting India’s cost competitiveness.

Since the 1990s India has been one of the most successful exporters, the most successful period coming in the first decade of the current century no doubt aided by the Y2K problem. Thus, on the one hand, we are the third best in the world in terms of overall export performance while simultaneously failing to take advantage of the abundant unskilled labour availability leading to missed opportunities for economic activity. 

CONCLUSION

A cautious conclusion is that the ability of India’s export growth to outpace that of the rest of the world will be increasingly constrained. Both exports of manufacturing and services are skill intensive and becoming more so if the quality and quantity of skill available to the economy starts slowing down

The inability to export unskilled manufacturing is an indictment but is equally an opportunity to increase the export numbers overall, thus increasing the per capita.

IMAGE CREDITS:- iStock/968819844