India’s Inward (Re)Turn

The Indian Express     14th October 2020     Save    

Context: There has been a misconception that India’s growth is consumption-led rather than export-led. Export opportunities in general and in specific sectors could be significant even in a post-COVID world.

A Critical Analysis of Inward Turning of Indian Economy: (Due to increased emphasis on “Atmanirbharta”)

  • Abandons the core principles of liberalization: that are - export-orientation on the macro-economic side, and slow but steady liberalization on the trade side. 
  • Increase in tariff: While between 1991 and 2014, average tariffs declined from 125% to 13%, since then tariff increases in 3,200 products (13% to 18%) have affected 70% of total imports.
  • Self-inflicted deterioration of exports: which was caused by a domestic anti-export policy including sharp exchange rate appreciation of 20% and social policy on livestock affecting agricultural exports.
    • Inadequate due to reduced market for consumption: The middle-class market size is between 15 and 40%  of GDP, which is smaller than expected. This is because of the following reasons:
    • There are a lot of poor people with low purchasing power.
    • Those who have purchasing power prefer to save more.

    A Focus on India as an Export-led Economy instead of consumption-led:

    • India has been a model of exemplar export-led growth:
        • Between 1995 and 2018, India’s overall export growth (in dollars) averaged 13.4 % annually, the third-best performance in the world amongst the top 50 exporters. 
        • India’s manufacturing exports grew on average by 12.1%, the 3rd best performance in the world, nearly twice the world’s average, following China and Vietnam.
        • India’s export-GDP ratio is currently 20%, more than twice as high as in the early 1990s, despite the post-global financial crisis (GFC) slowdown. 
    • India can still gain market share even in deglobalizing world: India’s manufacturing exports account for 1.7% of the world’s which is less than Vietnam’s; however, China’s secular ceding of low-skill export space provide opportunities for India
    • Opportunities in Skilled labour market exports: (around $140 billion)
    • Recognizing the potential of Services Exports: 
        • World exports of services have steadily risen to about 7% since the GFC.
    • COVID impact: has benefitted services sector as it complements social distancing norms.

    Conclusion: India’s growth model has been an export-led one and should not be abandoned.