With globalization has increased global value chain interrelationships, making economic systems more connected than ever before. The interconnection of nations also means a more unstable system, and instability increases in uncertain times, be it the COVID pandemic or other global events of importance, such as the Suez Canal blockage leading to higher freight and shipping costs, the need for semiconductors shortage, and the latest geopolitical tensions between Russia and Ukraine. However, crises have also provided us with an opportunity to rethink our existing systems in challenging times. India’s exports have shown resilience in times of crisis. They have grown significantly, and the country has exceeded its ambitious target of $400 billion worth of merchandise exports in 2021-22.
An export-led growth strategy is crucial for improving India’s overall competitiveness in the global market. An increase in exports increases the size of addressable markets, allows domestic firms to exploit economies of scale, and improves the innovation potential of firms as they compete with foreign competitors, allowing the dissemination of knowledge. Promote and increase productivity in various sectors of the economy. In light of this, the second edition of the Export Readiness Index (EPI) 2021 presents a comprehensive analysis of India’s export environment, adding new indicators that help paint a stronger picture. This goes beyond identifying intra and interstate disparities within the country’s export ecosystem. It helps in identifying the drivers and constraints faced by the export preparedness of individual states to assess their level of preparedness for expansion of export capabilities. It promotes the spirit of cooperative federalism and a fair competition amongst the States and Union Territories as it encourages them to take insights from their peers in strengthening their own export ecosystem.
Gujarat, Maharashtra, Tamil Nadu, Karnataka and Uttar Pradesh contribute more than 60% of India’s exports. These states have also scored high in the Export Preparedness Index. Achieving the country’s target of $1 trillion in exports of merchandise goods and services requires sustainable addressing of regional disparities in trade support, research and development and export infrastructure. Given the importance of exports in regional development, many relatively less developed states should emphasize the need to expand the export efforts of local firms. States need to formulate proactive policies to promote exports through micro, small and medium enterprises. Further, the key findings of the EPI suggest that states should do more to upgrade the existing export infrastructure to provide necessary trade support and to support a conducive business environment for exports. It is also noted that apart from the coastal states, most of the states struggle to enable the export ecosystem as transport connectivity is a significant constraint in the export potential of the state. Most Indian states have lagged behind in the creation of export promotion industrial parks, special economic zones (SEZs) and agricultural export zones.
Most importantly, states need to adopt a slightly multi-pronged export development strategy, i.e. focusing on a combination of manufacturing, agriculture, services and limited natural resources, as not every state can make manufacturing a priority sector, as business There is limited scope for export growth. in some of them. States need to prepare a roadmap to expand their export footprint globally and develop a dynamic comparative advantage based on their geographical characteristics, complementing the existing absolute advantages in their current export basket. They need to move away from the traditional approach of formulating export promotion strategies based on only those key areas in which they have a stable comparative and absolute advantage. The central government and state governments need to work closely with firms, export organizations and exporters to help identify dynamic comparative advantages in the export of products and services.
India’s Union Commerce Ministry is deepening its engagement with states and districts to promote exports. It is working on a portal that will provide country- and commodity-wise export data for states and districts. The ministry is also making efforts to fill in the gaps in the service export data.
In his work on the ‘diamond position’ of competitive advantage, Michael Porter, a leading theorist in competitive strategy, emphasizes that competitive advantages often reside in a business’s place. Therefore, to assess dynamic comparative advantages, state governments need to look at firms embedded in this sector to assess why firms in another sub-national region are more successful in their export efforts.
The export potential of a sector is the result of a mutual decision-making process among the industry, firms and exporters. It is characterized by regional factors such as factor conditions, demand conditions, human capital, physical and technical infrastructure, availability of suppliers and efficient administration, in addition to open and vigorous local competition. All of these have an impact on a favorable environment for exporters and can be worked upon.
It is reasonable to forecast that almost all economies will continue to be hit by external shocks in the years to come, which in turn may stall the global recovery. In this context, it is very important to understand the growth trajectory of the Indian economy, which would be incomplete without considering the export ecosystem at the sub-national level to foster a resilient export ecosystem. This is all the more important in times of crisis.
Amit Kapoor and Kundan Kumar, respectively, President, Institute for Competitiveness, Guest Scholar and Lecturer, Stanford University; and Advisor, Industry, NITI Aayog