Thirty year ago in July 1991, India launched great economic reforms, including trade and foreign investment. License Raj was abrogated. Trade and investment were opened almost free, except critical items and areas for a greater role to be played by private and foreign sectors. The second part of the reform was made in pursuance to WTO obligations to dismantle remaining quantitative restrictions on imports.

All the trade reforms were focused on growth in export for conventional items. Notwithstanding, import intensive exports grew faster than exports of conventional items. Policy perspective focused on export of textiles, garments, leather products and handicrafts. But, they rallied behind the expectation.

In 2020-21, petroleum, electronics and engineering goods accounted for nearly 40 per cent of India’s export, compared to 14 percent in 1999-2000. Primarily crude oil is the base for petroleum products, which is imported largely, nearly 90 per cent. Similarly, given the dynamic transformation in the economy towards automation and modernization, imports of electronics and telecom equipments became the backbone for surge in growth of exports of electronic and engineering items.

In 2020-21, petroleum products alone accounted for about 9 percent and electronic and engineering goods accounted for over 29 percent of total exports, compared to negligible share and 14 per cent respectively in 1999-2000. Together, they accounted for 38 percent of total exports in 2020-21, compared to 14 percent in 1999-2000. Mobile phone alone accounted for one-fifth of total exports of electronic items. Over 60 percent of mobile phone manufactured in India is import based component, intermediates.

Exports of textiles, readymade garments, leather were left in slumber, despite various incentives were provided. These products, which accounted for one third of India’s exports in 1999-2000, slipped to one-tenth in 2020-21. Sarcastically, Bangladesh – a much later developed garment industry - excelled India in exports of garment.

Exports of conventional products are subject to frequent protectionism measures by importing countries. Abrogation of GSP scheme by USA hurt India’s export of readymade garments to USA. In 2020-21, it declined by over 22 per cent. USA is the biggest importer of readymade garment from India. It accounts for more than one fourth of India’s total export of readymade garments. In contrary, .export of drugs and pharmaceutical products to USA increased by 14.4 per cent in 2020-21.

India should give Vietnam support for value chain supply to bolster electronic, telecommunication and engineering industries, after China’s value chain industry is in tailspin in the recent period. India is over dependent on China to make a stronger base for electronic industry. Nearly, 38-39 per cent of total imports of electronic and telecommunication equipments come from China.

Vietnam can be a challenge to be alternative to China. Ever since the US-China trade war skyrocketed, many importers in America and elsewhere were revisiting their supply chain from China and moved to other countries. Among them, Vietnam is noteworthy.

According to the US Census Bureau, imports from Vietnam into USA jumped by 33 percent in the first half of 2019. Low labour cost is one of the main attractions for investment in Vietnam. It is almost 50 per cent lower than in China. Vietnam’s biggest specializations are in the production of electronics, textiles, and furniture. Eventually, electrical machinery, including electronics, are the biggest items of Vietnam’s exports. This translates Vietnam as an appropriate alternative to China. Even though Vietnam cannot catch up with China in terms of large volume and better logistics, one can likely meet a subset of their requirement.

Today, about 70 percent of international trade is driven by GVC (Global Value Chain). This means raw materials, parts and components and services cross-border numerous times to produce a final product. For example, a smart phone assembled in India might include graphic design elements, computer code, silicon chips, precious metals from several countries. Throughout these processes, the countries engaged in value chain make profits through exports by value addition. These manifest GVC a major channel for export growth in the world, according to OECD.

Economic Survey advocated that India should focus on exports of NP (Network Product), whose production processes are globally fragmented and controlled by MNCs. The success of these depends as much on capacity to import world class inputs as it does for export. Apple, Samsung, Sony for manufacturing mobile phones in India are the cases in point.

Exports of NP under GVC will boost India’s export, according to Economic Survey. Despite making a big success in automobile and mobile phones, India is at abysmally low in exporting NP. NP accounted for 10 per cent in India’s export as compared to 52 per cent in China and 47 percent in Vietnam in 2018. Therefore, GVC led export, which include both world class imports and export, should be the new engine for export growth. (IPA Service)