How to make exports boom: Any high growth and jobs strategy must place exports at the centre
Prime Minister Narendra Modi has made exports a high priority. Indeed, India would do well if it gave them the highest priority and pursued their success in mission mode. No nation has sustained growth rates of 9-10% for two or more decades without succeeding in global markets. China’s share in global merchandise exports rose from 2% in 1991 to 12.4% in 2012. These two decades saw China fully transform from a primarily agrarian to a modern industrial economy.
Today, India’s share in global merchandise exports remains low at 1.7%. In 2000, when China’s GDP was no more than India’s today, it already accounted for 4% of global merchandise exports. Sustaining high growth and creating good jobs will require a strategy centred on building an export-friendly ecosystem in the country.
The starting point for this strategy is shedding three of our current obsessions: import substitution, micro and small enterprises, and a strong rupee. Import substitution has never produced sustained rapid growth anywhere. On their own, micro and small enterprises can provide low productivity, subsistence wage employment to the multitude but they cannot be the source of high productivity, well-paid jobs without successful medium and large enterprises around them.
A strong rupee keeps imports artificially cheap for our citizens and our exports artificially expensive for foreigners. The resulting trade deficit then tempts policy makers to slap tariffs on imports.