India needs to focus on export-led growth: World Bank

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India’s economic growth in recent years has been driven by domestic demand and its exports were about one third of its potential, a World Bank official said, asserting that the next government needs to focus on export-led growth.

Praising attempts to liberalise markets within India, Hans Timmer, World Bank Chief Economist for the South Asia Region said “that is what is needed to become more competitive”. “At the same time you’ve seen also of the last couple of years that the current account deficit widened – an indication that increasingly growth came from the non-tradable sector – from the domestic sector, and that makes it difficult to export more,” Timmer told PTI in an interview.

In the last five years, he said, India’s overall growth was “too much” driven by domestic demand, which resulted in double digit growth of imports, and four to five per cent growth in exports. “In more recent months, that turned around somewhat. But the broader picture was that that’s a minus, he said.

The pluses were that we have seen the GST trying to create more flexibility within the country, so tha it’s easier to trade between states. That’s what you need if you want to trade also with foreign countries, he said.

“I think, the most important thing is the understanding that you need export-led growth because that’s where you increase productivity when you compete in international markets; that’s where you gain knowledge by interacting with competitors and with customers abroad. And so, it is that mindset,” the top World Bank official said.

India, Timmer said, is exporting only 10 per cent of its GDP. “What they should have exported is 30 per cent of the GDP, given all their characteristics. India is a big country, so normally a big country doesn’t export that much in per cent of their GDP because when you’re small you’re a lot more open.

“But even for India, 30 per cent would have been normal if you look at the experience of other countries. It’s only 10 per cent. So that’s an enormous gap. And the gap is widening in the last couple of years, he told PTI.

A latest report of the World bank on South Asia, he said, asserts that the economic under performance of South Asian countries is mainly because they are locked on fundamental issues within the domestic economies that have prevented the countries to become much more export-led, like one sees in East Asia.

Responding to a question, Timmer said the South Asian countries need to learn from China. “The fact that China has been so competitive for so long means that China did something right whereas South Asia didn’t do it right. There was a clear focus in China to have export-led growth and to integrate into global markets. And you see a sharp increase in productivity at all. This is not an explanation that we couldn’t compete. Somehow, the Chinese did it better than South Asia,” he said. The top bank official asserted that China is a “big opportunity” for South Asia. The slowdown in China is not a cyclical slowdown. It’s not because they don’t demand any more. They are slowing down because of the supply side. They’re running out of cheap labour in general because of their success. They are no longer that competitive,” he said.

Shekhar Ghosh is consulting editor, Indoasiancommodities.com. He has edited and written for publications like Business India, Business Standard, Business Today, Outlook and many other international publications. He can be reached at shekhar.ghosh@indoasiancommodities.in.

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