India may adopt the best trade practices of leading export-oriented economies like Korea and Japan as it looks to step up exports and generate millions of new jobs for its growing workforce.
Sources said the commerce ministry is likely to commission a study on trade practices of leading economies soon.
The idea to rejig trade policies has gained traction as the Narendra Modi government struggles to create new jobs. Just 1 lakh jobs were created in eight labour intensive sectors, including textiles and gems and jewellery, during April-October last year, as per data compiled by the labour bureau. Earlier, employment generation in these sectors had dipped to a 6-year low of 1.35 lakh in 2015. These figures are a far cry from the 1 crore jobs per year promised by the NDA. India could export merchandise worth $261 billion in 2015-16 against the target of $300 billion due to weak demand in key markets.
Government think-tank Niti Aayog has been pitching for a radical change in India’s manufacturing policy. Currently, micro, small and medium enterprises (MSMES) dominate India’s manufacturing landscape with close to 45 per cent share.
But Niti Aayog has pushed for shifting focus from MSMEs to large-sized firms to drive country’s exports. It has also called for creating coastal economic zones (CEZs) similar to those in China and asked for states’ support in acquisition of land.
“Indian manufacturing is dominated by small firms with low wage and productivity. They mostly focus on the domestic market. We lose out on major share of export market without large firms,” Niti Aayog vice-chairman Arvind Panagariya had said in a meeting of state chief secretaries last year. “Our focus should be on creation of skills for low skill, large scale manufacturing that can take place rapidly,” he had said.
Panagariya called for making the policy regime predictable and transparent, introducing a 10-year tax holiday and simplifying tax laws so that manufacturing could be promoted and jobs created on a mass scale. To make his point clear, he said, “India’s real issue is under employment, not unemployment. We need jobs that pay well.”
A key bottleneck that makes Indian exports uncompetitive is high logistics cost. India’s over-dependence on road freight means that logistic cost as a percentage of the GDP is as high as 13-14 per cent compared to 7-8 per cent in developed countries and 9-10 in other BRIC nations, according to a recent report from the Indian Foundation of Transport Research and Training.
The NDA government is already working on the Sagarmala project, a port-led development model, to help industry lower logistics cost and make Indian exports competitive.
As per the national perspective plan unveiled by the government on the Rs 4 lakh crore Sagarmala project, export time will reduce by five days. The industry will save as much as Rs 33,000 crore annually on logistics cost. Korea is world’s most export-oriented large economy, with exports accounting for 50.6 per cent of its GDP in 2014, the latest year for which data is available. Exports contributed 45.7 per cent of Germany’s GDP during the same year, the second most export-oriented economy after Korea.
Korea’s large-sized business conglomerates, or cheabols, are export champions. Japan too follows a similar trade model. America’s big corporations are also its top export earners.
However, trade practices are often closely linked to respective countries’ culture and so it might not be easy for India to successfully replicate them, warn experts. This is especially true in case of Japan.
But Korea’s trade practices, which are basically a blend of American and Japanese trade policies, would be relatively easy to adopt for India, say trade experts.
