India's 2030 Export Aim Of $2 Trillion Difficult, Not Impossible: Here's What The Govt Needs To Do

The 2030 target would appear ambitious as it implies India’s exports must grow 17 per cent annually from now on, compared to an annual growth rate of 12.7 per cent averaged during 2001-2022. 

It would also mean the share of exports in India’s Gross Domestic Product (GDP) will need to go higher than the current levels, which is about a fifth. In 2001, the share of exports in India’s GDP was 12.6 per cent, which nearly doubled to 25 per cent by 2013, on the back of increased globalisation of the economy.

Over the past decade, however, it slipped back to 20 per cent, as the growth of exports decelerated more than that of the broader economy.

Reaching the US$ 2 trillion target by 2030 may, therefore, be very difficult, although not impossible. India’s exports, both of goods and services, must grow inorganically to achieve this. Our history gives us confidence that higher growth of exports with an increasing share in GDP is achievable. However, several strategic issues require attention in this regard. 

Rising exports will induce a rise in imports in two ways which will affect future GDP growth. Export growth will aid faster expansion of the broader economy while boosting demand for both consumer and capital goods.

Secondly, the export of manufacturing products often needs imported machinery, accessories and components. Higher production demand will thus fuel demand for imports.

If the foreign currency outgo on account of higher imports is more than offset by earnings from exports, there will be no adverse impact on the country’s balance of payments. Otherwise, there will be consequences that need to be addressed.

One way to manage such risks is to be more strategic in our export focus, instead of spreading it too thin across many sectors. 

Strategic Focus

Identification of sectors through value chain analysis and selective opening of machinery and component sectors should be the first step. This may be followed up by a strategy to convert a few of the importing sectors into export-oriented sectors in a time-bound manner. A popular example of this is the mobile phone sector in which India has turned itself from a net importer to a net exporter.

Some other sectors such as medical devices, toys, other electronic devices, etc can also be part of this, in addition to the existing major exportable sectors. Alongside the broader export target, sector-specific targets should also be fixed.

However, this will only partially boost India’s competitiveness but does not ensure the increase in exports envisaged in the 2030 target, especially when some of the leading world economies have slipped into recession. 

Also, in many parts of the world, there is a surge in government subsidies, investment incentives, tax rebates, unlocking of supply chain bottlenecks etc, which may be putting exports from India at a disadvantage.

Protectionism On The Rise

Countries that were once champions of laissez-faire, a free-market philosophy, are increasingly embracing subsidy-driven strategies to protect critical sectors. In the United States, policies such as the Inflation Reduction Act (IRA) and CHIPS and Science Act (where CHIPS stands for "Creating Helpful Incentives to Produce Semiconductors") have blatantly offered subsidies to attract investment in specific manufacturing sectors such as semiconductors, and electric vehicles (EVs).

In some cases, these subsidies are justified under national priority such as climate action imperatives, lowering healthcare costs, etc.

Although the underlying reason behind such actions has been to reduce America’s dependence on China, they are also hurting the trade interests of countries like India. 

China introduced subsidies for a broader range of sectors through its Made in China 2025 plan that was introduced a decade ago. As a result of this tug of war, European companies are now inclined to move their bases to the US or its allies. This has forced countries like Germany to enhance their subsidy programmes. There have been reports that South Korea and Japan are also planning for large subsidies to retain domestic companies.  

Given this backdrop, India needs a serious look at its industrialisation programme and how to enable its export-facing industries to remain competitive internationally. An overarching approach to the three policies—industrial, trade, and innovation—is paramount to fighting the ongoing subsidy war and staying on course to achieve the US$ 2 trillion export target for 2030. 

The information technology sector, with the prowess it has already attained on a global scale, can be an enabler for aiding the growth of manufacturing—through the development of embedded services such as artificial intelligence, robotics, the Internet of Things, etc. 

More thoughtful introspection is required as to how we do ‘servication’ of manufacturing without losing jobs and increasing production capacity. Hence, industrial policy space must have an interaction with innovation strategy to make a fundamental change in productivity and enhance India’s exports. 

Overlapping Policy Space Necessary To Address Dynamic Change

Here are some of the broad strategies that could be considered to develop a common space among the three policies:

• Identify import-competing sectors, which can be oriented for export purposes quickly by fixing some strategic issues. For instance, one could look at the strategic use of Production Linked Incentives (PLI) to turn around mobile phone manufacturing.
• Identification of sectors, which are already under the global value chain (GVC) framework and understanding the capability of the domestic supply chain of these sectors. A programme could be designed to enhance the capability of supplier firms. For example, strengthening the auto-component sector, biotechnology and active pharma ingredients (API) can boost up productivity of the automobile and pharmaceutical sectors.
• Invite ‘Lead Players’ under GVC, which could be large domestic or international firms. Ask them to develop an ecosystem with domestic ‘medium’ size firms. The government’s effort to bring Apple and Tesla is worth mentioning in this context. Bringing a balance between allowing these companies to import components and incentivising the creation of domestic component supply firms will be a key challenge. A similar offering is also required to enhance the capability of Indian MNCs.
• Focus on select labour-intensive sectors such as apparel, leather, etc. is also important, with a motive towards higher value creation in the international market through innovation in designing and branding. Creating flagship Indian Brands in the international market should be the aim.
• Convert India’s agricultural exports to a relatively high-value processed food sector to ensure quality and generate demand in the international market. Generally, agri-exports suffer from price volatility and can’t fetch large benefits unless products are processed.
• Develop strategies for some of the low to medium tech sectors such as petrochemical, machinery, consumer goods, etc and ignite process, design and product innovation in these sectors.
• To exploit India’s drive towards better technology, develop a two-track approach—build dominance in the low and medium tech areas while seeking entry into the innovation value chain of the high tech sector. Put differently, India can dominate in Fast-moving consumer goods (FMCG) areas, while being a part of the value chain in the aviation industry.

The above-mentioned strategies are in complementarity of India’s sustained effort to improve infrastructure including trade facilitation and ease of doing business.

India must take advantage of the changing global narrative in building an industrial incentive programme and fix productivity issues holistically to achieve its export target and move beyond.  

(The writer is a professor at the Indian Institute of Foreign Trade, New Delhi. Views expressed are personal)