If state governments are demanding 'morally right' and sizeable share in tax earnings (under GST), they should also be made equally and individually responsible to build on the nation’s forex chest.

Steven Philip Warner | March 2017 Issue | The Dollar Business

“The whole is greater than the sum of its parts,” stated a confident Aristotle some 23 centuries back. Seems, India is still betting on this popular ancient Greek's thought.

Disruption can take many forms. A nation’s exports bandwagon is susceptible to any form of disturbance, political being one. India is no different. In recent weeks, we've been witnessing two ‘in-the-making’ events that will have a bearing on India’s exports in the immediate months and years to come.

First, the manner in which State politics (the ongoing war of ascension, especially in India’s most populous and sixth-most populous states) is proving to be the most controversial reality-show in the current era, is symbolic of a democratic republic nation, little united in political will to achieve long-terms goals (leave alone on the exports-manufacturing and services-exports fronts). How state politics is shaping up in India proves that the country's geography is not the only thing that's split; its mental health too is. (Our school children could tell you that.) And that's not good for an India that promises to become the next export powerhouse. We spoke of Donald Trump forgetting his near-celebrity class and manufacturing disturbing speeches and baseless accusations during his recent campaign. We see nothing less (actually, worse) in state politics in India today. [We are not politically inclined, but for the sake of selfish, state politics, you just cannot call a country’s democratically elected-by-popular-vote Prime Minister a “donkey” or a “psychopath” or a “terrorist”. You cannot. Period!] And those responsible for setting such wrong examples of forceful disruption and bearing such deliberate loose-tongues are the hallowed heads of India’s states. [Wow!] It’s not that political campaigns cannot get critical. But the manner in which 'name-calling' is happening is proof that “respect” amongst regional leaders in India (which naturally is important for the country to progress in exports and otherwise) is missing. The word 'dread' would apply here.

An observation here: If you look at how India’s top 10 populous states have fared in exports in recent times, you’ll be shocked to learn that going by their performances until the first half of last year (as reported by DGCIS Kolkata), none of them will end FY2017 with higher merchandise exports as compared to FY2015. UP, Maharashtra, Bihar, West Bengal, MP, Tamil Nadu, Rajasthan, Karnataka, Gujarat and Andhra Pradesh – in total, their goods exports will drop by about 30% in two years, and that’s indicative of how serious and busy state politics and domestic affairs have kept them, while their contributions to nation-building have fallen from the trees.
I juxtapose the above matter with the second development where work is on in full-swing, and is expected to conclude sometime in March if everything goes as planned – that of necessary, constructive changes being incorporated in India’s Foreign Trade Policy 2015-2020. In my recent meetings with top government officials in charge of this exercise, much seems to be happening behind the scenes to ensure that India’s run of rise in exports for five consecutive months (until January 2017) is a sustainable one. We have one recommendation though – let there be a change that incentivises the states to contribute greater to exports and puts in place a measurement system that gives each state credit based on the origin of exports (rather than just port of final exports). A minimum performance critera could be put in place in proportion to a well-constructed metric that could be a combination of various factors (like the number of employable individuals, educational institutions, land and other physical assets available for manufacturing and services activities and export-related infrastructure, etc.). It’s no secret that the Centre has for years been requesting the states to formulate their respective export promotion policies to support its efforts. It’s time to proactively ensure that states actually graduate beyond draft policies, have the state assemblies finalise the policies and place it before the Centre for final approvals or feedback. And it’s not a case of the states just dealing with land, electricity, water, etc. If the states are demanding a logical portion in tax earnings (under the GST regime), they should also be made equally and individually responsible to add to the nation’s forex revenues.

As per a study by TDB Intelligence Unit, for the first time since China adopted its “exports-led GDP growth” policy – that was about 38 years back – this year, India is expected to record a higher exports to GDP ratio than China (refer to chart titled, ‘Exports to GDP ratio - India may surpass China in 2017’). To translate - China could lag India in terms of its “dependence on exports” starting CY2017. One, it will mark a relative shift in China’s focus on its domestic economy. Two, and more importantly for India, this will signify a greater reliance on exports ('exports intensity') and therefore a need to grow exports by leaps through adoption of various progressive measures, of which, one is digitisation (not just in the form of EDI tor trade promotion, but also encouragement of e-commerce platforms and digital marketplaces for exports), and the other being proactive accountability of the states, which should be enforced in the most urgent sense.

In challenges lie great opportunities. TDB Intelligence Unit conducted another set of analysis and concluded that while our dependence on the largest consumer market (USA; in terms of Household Final Consumption Expenditure) has been rising in recent years, that on the second largest, China, has been falling (refer to chart titled, ‘Indian exporters' falling dependence on China?’). China on the other hand has been consistent in ensuring that USA and India contribute growingly to its exports base. Between Q4, 2011 and Q3, 2016, China’s contribution to India’s exports fell from 7% to 2.9%, which that of USA’s grew from 11.3% to 16.6%. [During the same timeframe India’s and USA’s contribution to China’s exports grew.] These findings carry a message.

Don't ignore China. Not yet.

We cannot falsely assume that the dragon has suddenly developed weak jaws; especially with US walking out of TPP and NAFTA, RCEP taking shape, and when you consider that “China running out of steam” is practically a perception that is largely influenced by trade on the merchandise front.

Look, reality is subjective. China is still heavy enough to continue its dominance on world exports and at the same time, is taking initiatives to not only develop its services exports potential but also consumption capacities of its citizens. India on the other hand – given new initiatives by the government – has to understand that the days of micro-multinationals are here and its home-grown small set-ups and MSMEs have to be enabled and encouraged to conduct trade overseas, even if that means something as challenging as exporting to China! And that is where state governments will have an important role to play, because as we said before, irrespective of whatever initiatives are announced by the Centre – land, water, electricity and human capital still come under the purview of the states. And if economic growth is being sidelined for the sake of 'verbally roadside, and ugly politics', every initiative taken by the Centre and those by one of the most responsible governmental bodies in modern day India like DGFT – will make their way out of the window.

For India to take on newer challenges from emerging exporting nations and become both a land dependent on higher exports intensity and micro-multinationals, the on-battleground disrespectful and rather self-centred verbal exchanges at the state levels need to give way to constructive time in state assemblies being spent on formulating state export policies. Then, for Indian exports, "The whole will forever remain greater than the sum of its parts".