Manufacturing exports can benefit from India’s empowerment push
The 2022-2023 budget unveiled on February 1 continues the government’s vision of empowering Indians and fostering economic activity. The government’s economic vision, since the beginning of the pandemic, has been based on the following underlying philosophy: to alleviate the suffering of specific sectors and households by empowering them to overcome difficult times and emerge stronger, in order to may they thrive in the hourly boom to follow. Its long-term growth vision since 2019 is to kick-start economic growth through public investment in infrastructure (both physical and digital) and sensible fiscal policies that encourage capital formation and job creation.
In particular, the extension of the Production Linked Incentive (PLI) schemes is the result of the government’s belief that large-scale manufacturing must play an important role in ensuring higher economic growth and better standards. of life for the people. The exhaustion of manufacturing in many developed countries has caused social divisions and the withering away of communities that once thrived. Manufacturing provides more space than services for less skilled and less educated people to contribute to and benefit from economic activity.
Even for relatively less skill-intensive services like tourism, the short-term outlook is not bright. Statistics on the impact of covid on air and tourist traffic are grim (bit.ly/3hhRcUt). It is unlikely that international tourism will ever return to the full extent that prevailed before the pandemic. Thailand has lost so much in tourism that merchandise exports are relied upon to soften the blow. In India, boosting the manufacturing industry to improve its share in the economy is essential for mass employment and income growth. Upgrading the sector’s prowess and exports while promoting high value-added services exports are not mutually exclusive.
The Global Trade Update released by UNCTAD (bit.ly/3LLMps6) in February 2022 captures the challenge of relying on services exports, not only for the world but also for India. The report states: “During the fourth quarter of 2021, trade in goods increased by nearly US$200 billion to around US$5.8 trillion, a new record high. During the same period, trade in services increased by around $50 billion to around $1.6 trillion, a value just above pre-pandemic levels. The report notes that India’s goods exports grew by 25% in the fourth quarter of 2021 on average in 2019, while our services exports grew by 7% (third quarter of 2021 above 2019 average) .
In fiscal year 2021-22 through January, our non-oil, non-GJ exports (gold, jewelry and precious metals) totaled $255.7 billion, up nearly 35% from the same period in 2020-21 and 29.2% in 2019-20. The growth of exports of engineering goods in April 2021-January 2022 was almost 38% higher compared to the same period of 2019-20.
Moreover, the search for greater value added in the manufacturing sector does not necessarily have to be done (and is not done) at the expense of labor income. Indeed, the government has continued to formalize the economy with a view to improving working conditions, increasing incomes and providing workers with wage security. Over the past eight years, several budgets have encouraged employers to hire more workers into formal jobs, with the government providing for the payment of employer contributions to the provident fund under conditions and limits. The launch and rapid increase in registrations on the E-Shram portal is a sign that the government aims to bring better working conditions, access to many available formal benefits, credit facilities, etc., to million workers. All of these should improve their income.
An increase in manufacturing’s share accompanied by a steady increase in labor’s share of income is possible if productivity improves. This is where the creation of physical and digital infrastructure and process reforms such as Gati Shakti, which would reduce logistics costs over time, should play a role. Indeed, cheaper logistics would allow goods manufactured in the hinterland to be shipped around the world via port cities.
State governments must also play their part. A recent report by the Observer Research Foundation and Teamlease shows that violations of several trade laws, rules, and regulations result in criminal penalties. The majority of them fall within the domain of the States. The sooner they are reviewed and removed, if any, the easier it will be for entrepreneurs to focus on what they do best: generating jobs and profits, and thereby contributing to economic growth.
The commercial sector, for its part, must recognize the importance of creating a win-win combination of increased profits and increased labor income. To do this, it must improve the complexity and sophistication of Indian manufactured goods. The Economic Complexity Index, developed by the Harvard Growth Lab, shows that India rose significantly on this index in 2018 and 2019. But we still have miles to go. Indian companies must use the prevailing tailwinds – a weak tax regime, low real interest rates and a regime determined to improve trading conditions – to up their game.
India is not trying to copy China. It charts an economic destiny in keeping with its strengths and aspirations while creating the conditions that translate these aspirations into reality.
These are the personal opinions of the author.
V. Anantha Nageswaran is the Chief Economic Advisor to the Government of India.
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