The Financial Express
Exports from India have been unexciting for the last 6-7 years now. With no government really able to fix the issues that make India uncompetitive—the latest budget, to cite one example, once again refused to cut corporate taxes for large firms—it is no surprise Exports continue to languish; exports in June hit a 41-month low. At just $27.7 billion, that was a near-10% year-on-year (y-o-y) drop. Even if you remove oil exports which were affected by a temporary shutdown of a crude distillation unit in Reliance’s Jamnagar refinery, the near-6% y-o-y contraction in non-oil exports is a clear indication that India hasn’t been able to make much headway in a competitive market. One can make some allowances for listless global growth and dull trade, exacerbated by the US-China trade war. But, the writing has been on the wall for a long time now and the government needed to have been far more responsive. In fact, India’s exports were slowing even when global growth and trade were perking up.
A Nomura analysis shows that on a three-month moving average basis, core export volumes dipped sharply in June, with manufacturing, agriculture and non-agri commodity sectors all doing badly. In the absence of specific measures to help labour-intensive sectors—textiles and jewellery—large job losses would not come as a surprise. The stumbling blocks are well-known: HSBC economist Pranjul Bhandari had written, in May 2016, that domestic bottlenecks were the biggest hurdle, and were the cause for 50% of the export slowdown since 2008. The remaining 50% can be explained by sluggish global demand and the currency. If the government is serious about pushing exports, it must raise productivity levels and that requires, among others, changes in labour laws. Not the kind of cosmetic changes being contemplated, but game-changing ones that will give exporting companies confidence to hire. Exporters must be given the flexibility to pay what they feel is a reasonable wage, to enforce a certain number of working hours and be allowed to fire workers who are inefficient. India is already uncompetitive where wages are concerned, which is why its share of the market is being taken away by countries such as Bangladesh or Philippines.
Crisil, too, has pointed out that there are deep-rooted structural issues and while GST may have disrupted the sectors—especially due to long delays in tax refunds—the ratings agency has observed that competitiveness in the labour-intensive sectors had begun to erode even before GST. In the decade between 2006 and 2016, the RCA—revealed comparative advantage—declined for three important export areas; demonetisation and GST added to the problem. For instance, the RCA for gems and jewellery dropped from 6.38 in 2006 to 3.96 in 2016, from 3.12 to 1.97 for leather and from 2.43 to 2.22 for readymade garments. So, while slowing global trade is undoubtedly an issue, the government must accept that it is the lack of cost advantages—both in capital and labour—that is hurting exporters. Unless these are tackled, exports will continue to fare badly.
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