A Rescue Mission...

India’s manufacturing sector has been straitjacketed to an extent that in another five years, our electronics import bill will surpass our oil bill. India cannot forever continue eating more than it can cook. Can it? Steven Philip Warner | @TheDollarBiz

Steven Philip Warner, Editor-in-Chief, The Dollar Business

It’s been more than a decade-and-a-half since India got caught in the Regional Trade Agreement (RTA) hysteria. RTAs (a parallel term used to describe Free Trade Agreements; FTAs), was born out of hope for reciprocity. Years later, we stand to realise that the expectations and imaginations of our many trade negotiators – responsible for 15 RTAs over the years – were skewed towards finding neverland! In the last decade, our exports to two dozen-plus RTA partners have increased by just 12.2% y-o-y – almost equal to the rate at which our exports to non-RTA geographies (11.8%) have grown. A couple of numbers will elucidate the labyrinth of RTA “spaghetti bowl” inside which India’s outbound ships seem to have lost direction. Contrary to what was naturally expected by our policymakers (that our outbound trade with RTA partners will outshine that with non-partners), our imports from RTA partners have actually grown at a faster pace (12.3%) as compared to those from non-partners (11.5%). To be specific, as compared to FY2005, India’s trade deficit with the ASEAN bloc increased by 1,625% to $8.15 billion in FY2014, and that with non-ASEAN and non-SAFTA RTA partners rose by 262.33% to $4.56 billion. RTAs have therefore only worsened the equation for India. Though the deficit with India’s RTA partners represent just 10% of its total trade shortfall, the negative balance cries out for a closer inspection. The embarrassing truth that these numbers mask (only partly so) is that, India is still a nation that largely survives on imports. The cure to this malady will come in the form of India being groomed to accelerate in the manufacturing race. I say ‘groomed’ because we’re not yet ready to make the big leap. Recently, there was much talk about how India “could” take advantage of the impending supply vacuum in Russia due to the ban imposed by it on food items imported from US, EU, and many other nations over a sanctions row. Reality check: India till date wasn’t even seriously treating Russia as a consumer market in most of these categories. To make some quick references, India’s contribution to Russia’s imports of automobiles (in 2013) stood at less than 0.3%, plastics – less than 0.5%, aircraft parts – 0.2%, iron & steel – 2%. These indicate that the idea of making merry under the Kremlin sun is just a reverie! Much of this incapability is born out of the fact that manufacturing in India wasn’t considered a serious affair till date. Neither cost competitiveness nor quality differentiation can be overwhelmingly talked about when it comes to our manufacturing sector and on a global platform. Forget exports, India’s manufacturing capabilities have been straitjacketed to such an extent that in another five years, our electronics import bill will surpass our oil bill, with manufacturing in India meeting just 25% of the total domestic demand. FTAs that favour partners over the host and a fractured manufacturing infrastructure – either, can never be the starting point if we are to usher in an era where India will officially be celebrated as a trillion dollar merchandise-exporting nation. A foreign onlooker will confess that India is piggybacking solely on its low-cost labour advantage. Still. Times have changed. Globally, exports is no longer viewed as a surplus function of manufacturing. The present WTO database is littered with examples of nations who have manufacturing units on a massive scale and count, purely dedicated to exports. Sadly, such a realisation has not dawned upon India. This idea that has to be hammered into the heads of our think tanks. Measures to infuse fresh lives into Export Oriented Units and greater sops to Electronic Hardware Technology Parks and SEZs can be a start. Incentives to exporters through schemes in the new FTP and allowing transferability of duty free scrips could be another. These would even come as an inviting sign to foreign investors who are on the lookout for an opportunity to overlook compliance-related hurdles in India’s manufacturing sector. India cannot forever continue eating more than it can cook. Can it? At least not if we want to live the reality of ‘Proudly Made in India’!

A Rescue Mission...

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