As snugly as pegs settled into holes in a pegboard, India finds its curves perfectly placed on the map. And as it appears, India’s export community has the right outreach plan in place. It is reading the radar right.

Steven Philip Warner| July 2014 Isssue | The Dollar Business 

I won’t classify this a case of “missing the woods for the trees”. Nothing unusual. Just plain geography with a dash of foreign trade – spare a glance at the world map. Spot where India sits, after centuries of continental drifting. It’s a sweet sight for any exporter willing to trade by the skin of his teeth. As snugly as pegs settled into holes in a pegboard, India finds its curves perfectly placed on the map. With markets like Africa and the Middle-East on one side (West) and an already rapidly advancing battery of South East Asian consumer and production economies on another (East), the arrangement bears the appearance of a cartographer’s foul play. More believable however is the fact that the very purpose of this divine design was to serve a trader-nation’s ‘beyond the pond’ motive in the 21st century. 

Not to say India isn’t living up to expectations. In the past decade-and-a-half, our exports have increasingly moved away from developed economies, towards emerging markets. ‘Diversification’ is the word. Digest the following numbers. The world’s largest economy’s contribution (USA) to our exports stood at 21.7% fifteen years back. Today, it’s down to just 12.5%. Similarly, that of EU (the world’s largest trading bloc) has fallen from 29.2% to 16.45%. The tale of First World Order’s compromise is well explained by the generosity that is being shown to developing nations.

Definitely a stark contrast. To its east, exports to ASEAN in the decade-and-a-half leading to FY2014 (that mostly consists of developing nations), have risen from 4.9% to 10.7%. To its West, India’s exports to Africa’s 55 nations have risen from 6.3% to 10.0%, and those to Latin America have risen from 1.5% to 3.5%.

It would have been unimaginable for an Indian foreign trade data scientist living in the 20th century to imagine that fifteen years hence, the-then much ignored and politically unstable African continent, recession-struck Latin America and a predominantly still-emerging ASEAN group (with half of this group mired in a severe economic crisis) would create demand for almost the same percentage of ‘Made in India’ products as the two big daddies of global trade – US and EU. What’s most encouraging about this change in trade flow is that it clearly shows how Africa, Latin America and developing Asian economies have become the big bulls in India’s shop. It depicts a change in perspective of our export community, one that has moved away from Uncle Sam and royal Europe. I have always found the ‘India versus China’ debate interesting. And often, you hear about the dragon spitting fire on the elephant. Allow me a one up for India. In fifteen years, it seems the elephant is developing some acute intelligence. A comparison is unavoidable. In CY2013, the top ten destinations accounted for 61.5% of China’s exports. In the case of a more diversified India, the proportion stands at 47%. And how many of these (except India) were Latin American, or African or lucrative Middle-Eastern or fleet-footed Asian in the case of China? ZERO! And in India’s case (except China)? TWO. To give you a clearer picture of how diversified our foreign outreach has grown, amongst China’s top 50 export markets, 11 belonged to the aforementioned four groups. In India’s case, the count was 164% higher (29). If you thought Africa was important, India has an upper hand here too. Only 4.1% of China’s (products which mostly low-priced) are exported to Africa; much lower to India’s 10%. [Let’s give the dragon its due – Latin America’s share in its exports is 6.4% as compared to 3.5% of India’s; proof that we’ve not perfected the diversification strategy yet!]

As it appears, India’s export community has the right outreach plan in place. It is reading the radar right. But the flight control is in the hands of our policymakers. The new Foreign Trade Policy (2014-19) that is expected to be announced in August this year will determine whether this run along the right path of diversification will culminate into good tidings for India’s august group of exporters. Will amendments to Special Focus Initiatives make incentives (FMS and MLFPS) substantially generous, and exemption schemes (EPCG, DFIA and Advance Authorisation) more attractive? Will the EPCs be made more accountable? Will labour-intensive and high-tech industries – both – get the desired fillip? Will more ‘NiryatBandhu’ schemes (that was conceptualized for mentoring and encouraging first-gen entrepreneurs in the last FTP) be launched? Will the MAI and MDA schemes be expanded and extended? Will more direct tax incentives be introduced to make India a manufacturing hub? Will services sector-related schemes be introduced and polished to offer real time advantage (like the SFIS) and will this contributor to India’s GDP be given a more motherly treatment by including it in FMS? Will duty credit script value be raised from the current 10% (under the Agri Infrastructure Incentive Scrip scheme) – a move that could potentially solve the infrastructure mystery for exporters and importers? Will the new FTP help us get closer to the $400 billion in exports mark this fiscal? Yes, our exporters have hit the right chord. They have a clear strategy in mind – diversify beyond the First World and re-route to Africa and Latin America and other lucrative regions. But without the right policy throttle, our export craft-loaded-with-strategies will be incapable of a lift-off!

And if the diversification strategy meets the right policy, guess who will win... [Join the first alphabets of each of the previous paragraphs to know.]