Exports should not be restricted to high income countries only

India is far from formulating a successful strategy of economic policy and integration

The government's focus appears to be on increasing exports of high-value goods to high-income countries and reducing fiscal deficits. Looking at the available data, this policy seems to have met with moderate success. According to April 2023 data released on Monday, the deficit in exports of goods and services fell to a 21-month low. The figures for the financial year 2022-23 also show that despite this growth rate being less than 7 percent, exports have increased. But after studying the statistics separately and taking a long-term view, it does not seem so.

India is far from formulating a successful strategy of economic policy and integration. A slight change in the demand for oil and precious stones also reduces the goods export deficit, but this cannot be the basis of stability in the external account. Export of services from the country is certainly increasing but it is not part of the government's policy. This is the reason why the information-technology driven service sector is constantly facing the challenge of losing its market share.

The main reason for this can be attributed to the rapidly increasing use of artificial intelligence. Long-term statistics show that exports to the European Union and America have definitely increased, but exports from India to Asian and African countries have declined. The reason for the increase in exports to the European Union and America is that India is buying oil from Russia, refining it and selling it to these countries. If India is to become a major center of trade and manufacturing, it will have to increase its exports to and imports from other middle-income countries. But that doesn't seem to be happening. This situation has not arisen in a year but is a structural problem.

According to data from the Indian Cellular Electronics Association published in this newsletter, imports of electronic goods to the US may have tripled since 2018, but that is only a real increase of $3.2 billion. Compared to India, the real increase in Vietnam's case has reached $40 billion. Given this growth rate, it appears that India's performance has been really poor compared to other Asian countries. India has not been able to benefit from the slow exit of companies from countries like Vietnam or Malaysia from China and exports to Asian and African countries have declined.

Because the government is reluctant to make big trade deals. Vietnam is an example of a country that misses no opportunity to benefit from economic integration. It is part of both the Regional Comprehensive Economic Partnership and the Comprehensive Progressive Agreement for Trans-Pacific Partnership.

Trade with middle-income countries and more exports to developed markets are not interchangeable. Given the rapidly changing supply systems in the world today (especially in large industries like electronics), both of these things will actually happen at the same time. A truly sustainable trade policy would focus on structural strengthening regardless of temporary fluctuations in the trade deficit. This will help Indian companies and manufacturers establish a presence in the global value chain.