Labour-intensive exports need a policy push

December 8th, 2017 | Esther Parimala | Tags:

Dec 08, 2017

The government of India has taken several measures to boost exports in its midterm review of foreign trade policy 2015-20. Apart from incentives for specific sectors such as ready-made garments and footwear, it also allowed duty-free procurement of the inputs needed for exports on a self-assessment basis. Further, a new logistics division has been established in the department of commerce to coordinate development in the logistics space. These measures, along with recent changes in the goods and services tax, are likely to help the export sector.
However, at a broader level, India needs structural changes to be able to attain higher and sustainable exports growth in the medium to long run, particularly in labour-intensive sectors. At a time when the global economy is witnessing a synchronized recovery, the latest gross domestic product data showed that India’s exports went up by just 1.2% in the second quarter of the current fiscal. According to the World Trade Organization (WTO), merchandise trade volume in 2017 is expected to grow by 3.6%, compared to 1.3% in 2016.
Exports are an important driver of economic growth and will also help create much needed jobs for India’s growing workforce. They played an important role in transforming countries such as South Korea and China in recent decades. Therefore, India will need to work on increasing competitiveness to expand its exports share in the world market.
It is often argued that India stands to gain as labour-intensive manufacturing is moving out of China due to rising wages and an ageing population. But this is not happening in a big way, and India is losing out to other Asian countries such as Bangladesh and Vietnam. In an article published in these pages earlier this week, economists at CRISIL showed that India’s revealed comparative advantage, an indicator of competitiveness, in some of the labour-intensive sectors has actually declined over the past decade. Vietnam and Bangladesh are becoming more competitive and are capturing the low-end manufacturing space being vacated by China. India will need to swiftly take necessary measures in order to improve its position. The latest Economic Survey (2016-17) also highlighted how India is losing out in labour-intensive sectors like apparel and footwear, and why it is important to focus on these sectors. For instance, apparel is 80 times more labour-intensive than the auto sector. India will have to work on multiple levels to increase its competitiveness.

Source: Live Mint

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