Can exports power India’s growth?
A recent HSBC report on growth outlook for India identifies two new growth engines — digital adoption and high-skilled exports. It comes as a whiff of fresh air in the hitherto stale environment of Indian exports.
The Covid-inflicted Indian economy, which declined 23.9 per cent in Q1 2020, rebounded to log a GDP growth of 20.4 per cent in Q1 2021 and exports contributed significantly to this. Merchandise exports touched a record high of $35.2 billion in July 2021, which was almost 48 per cent more than the $23.78 billion recorded in July 2020 and around 34 per cent over the pre-pandemic export value of $26.23 billion in 2019.
August 2021, too, showed an impressive increase of 45 per cent over the year-ago period. In fact, the exports grew by a whopping 66.92 per cent in the first five months of this financial year. The quarter ending June showed India having a current account surplus.
Exports worked wonders for Japan, China and the Southeast Asian tigers too. Somehow, it evaded India. India and China have almost similar export-to-GDP ratio — nearly 18 per cent — and yet China is called ‘the world’s factory’ while India is seen as a market. Can India’s GDP grow like China’s on the power of exports? For the current fiscal, the Ministry of Commerce has set an export target of $400 billion.
Competing in the international markets has never been easy as economic forces keep making it more complex for India. Recall June 2019, Trump removed India from the list of beneficiaries of General System of Preferences (GSP). India being the sixth largest economy, the US needed market access for its farm and dairy products. India denied and the US retaliated. A case of diseconomies of scale working against India. It should not have come as a surprise as any country growing richer will be denied the preferential status earmarked for developing nations. WTO objects to subsidies.
In 2019, a WTO panel had recommended that India withdraw the “prohibited subsidies” like the Merchandise Exports from India Scheme (MEIS); Export Oriented Unit (EOU) scheme and related sector-specific schemes; Special Economic Zones (SEZ); Export Promotion Capital Goods Scheme (EPCG); and a duty-free import for exporters programme (DFIS).
According to the Office of United States Trade Representative (USTR), Indian exporters received ‘illegal export subsidies’ worth over $7 billion annually. Why illegal? Because such subsidies provide unfair advantage to the recipient firms and hence are prohibited under the WTO. The WTO provides a limited exception to this rule for specified developing countries, and even that is temporary.
Subsidies have to be withdrawn as these countries reach a particular defined economic benchmark. India crossed the benchmark in 2015.
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