As finance minister Arun Jaitley grimly observed in the budget speech, “Our third major challenge is that manufacturing has declined from 18% to 17% of GDP as per new GDP data; and manufacturing exports have remained stagnant at about 10% ofGDP.” While everyone agrees manufacturing needs an enormous thrust to reach 25% ofGDP by 2025, do we miss something vital while discussing solutions? Compared to China, Germany, Japan, Malaysia or Thailand, Indian manufacturing is marked by near non-participation in most of the Global Value Chains (GVCs).
India does not manufacture most electronic, telecom or high tech products as manufacturing these requires participation in GVCs. India imports these, in large quantities. Becoming part of the high value added activities ofGVCs is critical for Indian manufacturing as the products manufactured in GVCs constitute a large 70% share of world trade in non-fuel manufactured products. Why does India not participate in GVCs? Because India cannot ensure quick export import clearances.
Why are quick export-import clearances critical to GVC operations? Let’s understand this. Manufacturing ofmost technology products is a multi-stage process involving production collaboration among firms located in several countries. To ensure efficient production process, the system binds all participants to just-in-time production and supply schedules. This requires quick export-import clearances at each stage. Any delay at one port or customs may create disruption for the subsequent stages of production. Obviously, both the defaulting firm and country may risk being tossed out ofthe network in such a scenario. China, Japan, South Korea, Thailand and Malaysia have become high-tech manufacturing nations through the quality trade infrastructure route. But India does not meet the benchmarks for efficient entry/exit at most ports/customs. Export data confirms this narrative. While India’s overall share in world merchandise trade is 1.7%, its share in electronic, telecom and high tech products is less than 0.4%. This weak product profile sets the boundaries for India’s manufacturing and export growth.
India mostly exports products that are tolerant ofless efficient trade infrastructure. Rice, cotton, diamonds, jewellery,yarn, garments, low end engineering products, generic medicines and petrochemicals are some examples. Of India’s export earnings 75% come from such products but they account for less than 30% of world merchandise trade. Simply put, most of India’s manufacturing and exports end up chasing a small fraction of the global trade basket. We need our ports and customs to deliver at world class benchmarks. Three steps can radically improve the system. One, make all export-import services available online with minimum human contact and clear exportimport consignments in less than aday. Because hundreds of ports, airports, customs stations, central excise offices, inland container depots and container freight stations still rely on standalone processing and manual documentation, we are far away from the integrated paperless environment required for faster clearances. Two, allow green channel clearances based on self-declaration at the factory and port. This will ensure quicker transactions and better use of infrastructure. We may make a beginning by scanning the profile of the top 11,000 exporters that account for 85% of India’s exports.
For defaulters, penalties should be steep. And three, upgrade physical facilities at the five major ports so they meet the global best parameters in timely delivery and set up three new world class port cum industrial complexes. These will be the new manufacturing cum export hubs for technology products – free from the limitations of weak domestic infrastructure. China benefitted from this model and products in China travel only a third of the distance between factory and port than products in India. Creating the conditions necessary for India’s participation in GVCs will spur domestic and foreign anchor firms to set up manufacturing facilities for production ofnot only electronic and telecom equipment but also high end engineering and complex machinery. With multinationals’ compulsion to relocate production elsewhere as China is becoming expensive, this is an opportunity India cannot miss.
Source:- blogs.timesofindia.indiatimes.com
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