Export and GDP Growth Trends
Between 2014 and 2023, India’s goods and services export growth, measured in US dollars, declined to 164% (CAGR-5.6%), compared to the impressive 520% (CAGR-17.9%) growth seen from 2004 to 2014. Similarly, GDP growth during the same period reduced to 183% (CAGR-6.9%) from 306% (CAGR-11.8%) in the previous decade. These figures indicate a notable slowdown in export and economic growth.
Challenges in the Global Economic Slowdown
India faces a significant challenge in boosting exports amidst the global economic slowdown. Many Western nations have adopted a “China plus one policy,” benefiting several South Asian countries, but India’s success in this regard has been limited. This raises questions about India’s export strategy, requiring critical analysis and policy initiatives.
Addressing Input Costs
To enhance exports, structural reforms should focus on reducing the cost of basic inputs such as capital, energy, logistics, and minerals. This reduction will enhance economic efficiency and global competitiveness while mitigating cost-push inflation.
Reducing Capital Costs: Gradually reducing the repo rate to 4% can help lower capital costs, unlike Western nations where increasing interest rates may have the opposite effect.
Lowering Energy Costs: Increasing thermal coal production annually by 15-20% until imports are eliminated can reduce primary energy costs. Addressing regulatory hurdles and logistics issues is vital, along with moderating taxes, potentially lowering coal costs by 35-40%.
Cutting Logistics Costs: Doubling the share of goods transported by railways to at least 52% and investing substantially in railways (estimated at Rs. 35-40 trillion over the next 5 years) can reduce logistics costs. Developing inland waterways by interconnecting rivers can also save freight costs.
Mineral Cost Reduction: A comprehensive review of the “tax on tax” policy is needed to reduce mineral costs and alleviate inflation in core-sector industrial products.
Boosting Service Exports
Exploring the potential of service exports, including health, education, tourism, and consultancy, requires a separate policy with investment incentives.
Focusing on Exports for GDP Growth
Focusing on exports is critical for propelling GDP growth, reducing the trade deficit, and stabilizing the rupee. While structural reforms may take time to implement, offering export incentives for incremental exports during the interim period can ensure consistent GDP growth and stabilize the rupee, all within WTO norms.