In the mid-1990s, when Indian corporates were struggling to handle an economic slowdown and high interest rates, I had developed a simple rule of thumb to filter high-quality companies: Does the company earn a significant part of its revenues from exports? The logic behind this was straightforward. If a company could thrive in the fiercely competitive global marketplace, despite India’s red tape, poor infrastructure and high taxes, it must be running a high-quality operation.
Of course, one had to be cautious. Back then, tax breaks and subsidies for exports often led to inflated figures and the risk of ‘fake exports’. But this could be tackled by examining the size of business, quality of promoters, cash-flows, debt and other metrics. A simple focus on exports would have thrown up the biggest gainers of the past 30 years: pharmaceuticals companies.
Can this logic be applied to a country? It is no surprise that all developed countries have a very strong export sector, especially the four-five that have actually become developed nations within one generation in the past 100 years. There are about 200 countries for which the World Bank and United Nations Trade & Development have compiled per capita export data.
In that listing, India is ranked 153, as against South Korea’s 44 and Taiwan’s 35.
If you think India is a service exports powerhouse, India’s rank in per capita service exports is 89 out of 114, trailing nations like Malaysia, Turkey and Thailand.
Many highly promising economies of the past few decades, like Brazil that were supposed to break into the rich-nation status but could not, have, coincidentally, poor per capita export figures. Even China, the world’s manufacturing powerhouse, is at 103; this could be because (apart from a large population base) its exports are of lower value than Japan, Taiwan and South Korea.
It is obvious why prosperous countries rank high on exports. Just like a company that excels in global markets, a country’s exports signal a range of economic health factors: world-class infrastructure, high standards of education, technological innovation, a well-functioning financial system, social cohesion and a thriving private sector—all supported by thoughtful and consistent government policies. The exceptions are nations very richly endowed with huge natural resources and low populations such as Saudi Arabia.
Economic planning can have many objectives—increasing domestic production, employment, reducing inequality, regional development, etc. The question is: What is the one thing that could drive India’s economic success?
Gary W Keller and Jay Papasan, in their bestselling book The One Thing, argue that there is often one action that makes everything else easier or unnecessary. For most countries, that answer is clear: double-digit export performance for years together and climbing the global value chain.
It is surprising that India has not followed this path even though there have been plenty of examples of export-led economic miracles from the 1950s closer home. Japan, South Korea and Taiwan embarked on this strategy very successfully which was partly copied later by Thailand, Malaysia and Vietnam.
There is a lot of debate around the world on what ought to be the path for poor countries to become rich.
Economists Daron Acemoglu and James A Robinson (Nobel Prize winners of 2024) emphasise the role of institutions in Why Nations Fail. However, real-life evidence shows the triumph of economic nationalism, under which an infant industry is initially protected to acquire the building blocks of manufacturing but is soon forced to compete along with other national players—on the international markets.
This model transformed Germany in the late-1800s; Japan learnt from this and employed the recipe in the 1900s, especially after the second World War, followed by two Japanese colonies—Taiwan and South Korea. Finally, China, starting late, has taken exports to a whole new level that now threatens large swathes of Western high-technology industries.
Each of these countries started at the lowest-end of the value chain (Japan was exporting raw silk in the late 19th century, then textiles, then bicycles, cheap electronics, then cars and so on) and moved up the technology ladder.
While India has wasted three decades in muddling along, even after the so-called economic liberalisation of 1991, under the Modi government, there is a faint element of economic nationalism in schemes such as production-linked incentives (PLI) and Make in India. But for these schemes to be effective, it has to use the playbook of export champions. The incentive has to be linked to exports, not just import substitution or higher production.
Initially, it will be hard which will automatically reveal what needs to be done to make each of the sectors export-competitive. In each of the four countries that have recorded extraordinary growth, the government worked with the manufacturers to help them import technology, arranged cheap finance, culled the weaker players and relentlessly imposed export discipline. India should learn from this and adapt.
Fortunately, India already has many of the ingredients for success. One, in sectors like pharmaceuticals, chemicals, steel, engineering, and services, the country has both domestic scale and a global competitive edge. Two, the timing is right too. So far, the Third World has been cowed down by the ‘Washington Consensus—a recipe consisting of fiscal discipline, trade and financial liberalisation, and privatisation.
Now the US itself has taken a sharp turn towards isolationist policies of economic nationalism and protectionism. Hence, while it is late, the timing is even better now to focus on an export-led Indian miracle. If the government is really interested in pursuing this strategy, it will have to create a system of carrots and sticks within long-term targets.
The Make in India slogan needs to be amended to Make in India for the world and big businessmen subjected to a strict export discipline—the Adani and Ambani groups included. It is the only route to Viksit Bharat.
(This article first appeared in Business Standard newspaper)
Comments
vram2311
4 weeks ago
We seem to be on the right track ... we have to reduce credit costs to MSME for manufacturing. FTA ( Free trade agreements) is a good approach for doing business with each country. All Ambassadors must be tasked with seeding projects where they are posted & indian companies must bid for the projects
Very well said Mr. Basu but the reality is "the world makes for India" which is reflected in the record trade deficit of over $ 250 billion and over $ 100 billion with China alone in the year 2022-23. In fact in Nov.'24, for the first time, service exports overtook goods exports. I see this trend continuing and the trade deficit touching $ 1 trillion by 2030. Just because, India has a comfortable forex reserve position of around $ 600 billion, it doesn't need that there is no need for concern. The huge reserves are due to forex inflows into the stock markets which can be reversed anytime.
A very good analysis on "Road to Viksit Bharat". When you compare performance of nations on the basis of per capita figures, ranking of nations with huge population (China, India) is obviously pulled down because of high denominator. It would have been better if author had also given ranking on the basis of absolute numbers. Otherwise, India may be fifth largest economy of world on the basis of overall GDP figure but on per capita basis, it is lowly 144th (in terms of nominal GDP) and 127th on the basis of purchasing power parity. That doesn't sound very encouraging, does it?
Per capita income decides quality of life, not the overall country's income. As countries develop, per capita income increases so does quality of each one's life- Indicator of developed nation. If we think otherwise, we will be harboring around false sense of achievement and moving nowhere in terms of development. It is not belittling the overall GDP value, it is about prospective towards better life for everyone.
The Indian stock market has experienced a remarkable surge over the past four years, recovering from the depths of despair during the COVID-19 pandemic. The Nifty 50 closed at 8,598 at the end of March 2020, and no one could have...
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