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.
