Domestic value added (DVA) content and the employment intensity of India’s exports has been declining over time. To overcome this, a dramatic increase in the absolute size of exports was essential to match or exceed the spill-over effect of exports as seen in the past, suggested Crisil in a report published ahead of new export policy.
Crisil said it used the OECD value-added data base to analysed the patterns and compared them with China in its report. In the medium-term, the composition of exports will need to change with a focus on labour-intensive exports to generate more jobs, Crisil added.
The Union Government is expected to unveil the foreign trade policy for the medium-term in a few weeks’ time.
“This time around, the exports bar will need to be set much higher even to simply maintain the impact of exports on job creation and income generation,” the Crisil research report said.
“Gross export numbers are misleading in terms of the impact they have on jobs and incomes. As percentage of GDP, DVA – the proportion of exports that is truly produced within India – has fallen to 78 per cent in 2009 (latest year for which is available) from over 90 per cent in 1995, according to OECD.
“At the sectoral level, DVA in exports is now as low as 51 per cent in other manufacturing items, 73 per cent in chemicals and 76 per cent in transport equipment,” Crisil estimated.
“To add to this, the employment intensity of exports has been falling over time with the share of service exports rising rapidly. Employment intensity of service sectors, for example, business services, which include IT/ITES is one of the lowest, given high productivity of labour in this sector,” the report added.
It pointed out that because of greater integration with the global supply chain DVA was dropping and foreign value added (FVA) was increasing. “Higher FVA makes exports vulnerable to exchange rate fluctuation, impacting export competitiveness”, it said.
Crisil in another study earlier this year had estimated that labour intensity – number of workers required to produce one million of real GDP (in rupees) – was 7.2 for manufacturing and 1.4 for business services.
Source:- thehindubusinessline.com
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