Export diversification: Where are we lacking

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Bikky Khosla | 18 Dec, 2012
Putting all one's eggs into one basket is not a good idea. If the basket is dropped, all is lost. This couldn't be less true when it comes to exports. Export diversification is not anything new to economies across the world, but it's still quite a struggle for most of the developing economies to achieve. India is no different. In the recent years, our policy makers are increasingly stressing on this strategy, and in this attempt to help our exporters reach new markets by eliminating trade barriers, a number of foreign trade pacts have been signed with many a nation.

But recently an exporters' association has raised concern that some of these trade agreements are encouraging imports rather than exports, pointing out to fall in India's exports to ASEAN, Singapore, Japan, Korea, Malaysia and Thailand in the first six months of the current fiscal. To counter this, the industry body has urged the Centre to bring all such countries or regions under the Focus Market Scheme or at least under the Special Focus Market Scheme.

Such a move will, of course, help the export sector to diversify, but I fear this wouldn't be enough. Successful export market diversification requires efforts at a scale larger than what we have seen so far, and the government, while continuing to support firms in breaking into new markets, also needs to focus on eliminating existing constraints in the domestic market and supporting firms to consolidate in this market. We need aligned focus and effort that, at this moment, seem lacking.

In addition, the government must work more to incentivize innovation; export sops alone are not enough to achieve diversification. Firms that successfully diversify exports tend to have more innovative production processes and products. They are characterized by higher investment on R&D activities, skilled labour and marketing. But in India innovation and R&D is an area where we are lagging far behind, and here the government needs to step into to create an industry environment that encourages innovation.

Finally, I think supporting export sustainability is crucial. Sops may help a firm in getting into exports, but this cannot be sustained if their products fail to leave an impression on global buyers. This is what happening with many of our small exporters. They carry out diversification usually through export of similar and less sophisticated products, and as a result, a large portion of our export flows are not sustained for long. Here I think we need policies and mechanisms to dispatch exports-related continuing education and training on aspects such as international quality requirements, certifications, global market trends, etc.

Before concluding, I would like to mention the recent good news for our export sector: the Centre is likely to come out with some new sops for exporters. In addition, the jump in October industrial production and fall in November inflation give some more rays of hope. Meanwhile, the RBI in its mid-quarter monetary policy announced today left the key rates unchanged but, however, hinted to the possibility of responding to the threats to growth "from this point onwards". Hope the coming months would bring some cheer to the economy and the Indian industry.