The mantra to boost exports – globalise to localise

export

Highlights:

• NITI Aayog’s export preparedness index ranks states on policy, business and export ecosystem, and export performance 


• Government wants index to be a criteria for healthy competition among states 


• States must identify gaps that can be filled in order to boost exports 


• ICRIER study states that PLI schemes must do away with local procurement requirements  


• Export policies of China, Vietnam have been successful in boosting their shipments 

NITI Aayog’s export preparedness index whose third edition is out identifies the front runners, and by default laggards, among states and union territories in the field of exports in 2022. The idea is to make the rankings which the index yields a feedback loop that helps states determine what works and what does not in promoting exports.

The index seeks to study and assess states on four aspects – policy, business ecosystem, export ecosystem and export performance – by using as many as 56 indicators. The index looks at disaggregated data to determine the performance of not just states but districts too and in the process looks at districts which act as the key engine for taking forward exports, driven by export promotion policies devised for them.

The states which come out winners and top the list in terms of their index score are the coastal states of Tamil Nadu, Maharashtra, Karnataka and Gujarat, in that order. In contrast, several smaller, land locked and Himalayan states and union territories make up the bottom of the list. Possibly the winners’ seafaring outward bound history has given them an orientation so that travelling to and sending their goods to distant lands has evolved as a part of their culture. The exception is the poor rank of Kerala and West Bengal for which an explanation can be found in their dalliance over decades with Soviet style leftist thinking.

The government wants the ranking which the index yields to create a degree of competition between states. Also, it wants exporting firms to act as a catalyst which can take the business and the entire economy of a state forward. This is because exporting firms are more competitive than those which focus only on the domestic market which has a tariff barrier protecting it.

As exports are the driving engine of economic growth, the government wants the data and insights that the index yields, along with a detailed scorecard, to help states identify their knowledge gaps and map the pathway for their growth. The whole process is data driven and helps states find out from peers what works and what doesn’t and use this insight to devise strategies that create export success built on the foundation of economic robustness.

A quick look at the index indicates that states which are overall better governed also tend to be good in exports. In other words, a short quick insight from the index is: set right your governance and that will take care of your exporting effort. Bihar, Jharkhand, Chhattisgarh and Assam all do poorly.

Uttar Pradesh does not but that may be because of the contribution of Noida, which is a part of the national capital region. Similarly, Haryana does well but that may be because of the contribution of Gurgaon which is again a part of the national capital region. Interestingly, Delhi per se does poorly but that may be because it houses mostly government offices rather than factories and IT development centres.

The states at the top of the league all boast of a business-friendly milieu and a continuous effort by the state governments to host new large manufacturing facilities being set up by global players as a result of following the ‘China plus one’ policy. India’s first chip factory is set to come up in Gujarat and the second in Noida in UP. Bengaluru is of course already well established as the country’s silicon plateau. Tamil Nadu has just signed an MoU with Singapore based IGSS Ventures to set up a semiconductor park.

It is highly reassuring that the government is laying great store by exports being an engine of growth as well as encouraging states to follow in the footsteps of those doing well. This serves the twin purpose of declaring the government’s commitment to economic openness and helping states in a spirit of cooperative federalism.

This should somewhat correct the impression that the government prizes self-sufficiency and is more combative than supportive towards the states. The reality is that in an integrated world economy, countries that score on competitiveness go forward faster. The competitiveness rests on successful value addition in a system in which firms import freely and export successfully through their cost competitive operations.

Here it is necessary to look at the PLI (production linked incentive) scheme rollout. It seeks to maximise domestic manufacturing by inviting global firms to set up facilities in India by offering time bound incentives. An ICRIER study, “Globalise to localise”, released by the union electronics minister, has argued that the government should temporarily remove domestic procurement and localisation requirements from the scheme for it to serve the ultimate purpose of boosting exports.

According to a Mint report on the study, the government should also remove duties on intermediate items and fast forward bilateral and regional trade agreements. This will be similar to the policies followed by China and Vietnam. The study notes that in 2010 India’s and Vietnam’s electronics exports were at the same level but over the next decade Vietnam’s exports became nine times that of India’s. China and Vietnam have followed a policy of first globalising and then localising.

The way to increase domestic value addition is by the state governments and the private sector working together to create a competitive domestic ecosystem for ancillary suppliers by removing unnecessary regulations, helping with technology transfer and supporting services, training workers, sharing information, investing in R&D and offering fiscal incentives. All this will do exports a great amount of good.

Subir Roy is a senior journalist and author. Views are personal and do not represent the stand of this publication.