An export led recovery… - Views on News from Equitymaster

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An export led recovery…

Aug 30, 2000

Think of the Southeast Asian nations. Then look at India. There is undoubtedly a world of difference as far as economic development is concerned. When you consider the fact that in the early 1950s all these nations and India were at a similar level of development, it makes one wonder what went wrong with our (Indian) policies. Well, let’s put it this way. We chose self-sufficiency while the others looked at an export led growth opportunity. Also, we chose to finance our own growth, shunning international technology and capital. The Southeast Asian nations, meanwhile, embraced foreign inputs. The results are apparent and India's efforts to liberalize the economy underscore the supremacy of policy measures adopted by Southeast Asian governments.

Cut to the present and the Indian government is opening its doors for foreign investment (capital and technology). Also, by creating a more conducive environment exports are being encouraged.

(US$ bn)1QFY001QFY01% change
Exports 8.27 10.20 23.3%
Imports 10.68 13.18 23.4%
Trade deficit (2.41) (2.98)23.7%
Source: RBI   

After a bad performance in FY99 and modest growth in FY00, Indian exports have finally shaken off the lethargy. Indeed, growth in the first quarter has been pegged at over 23%. Imports, led by growth in oil imports, too have risen sharply. Given the fact that growth in domestic demand continues to be modest India’s efforts to push exports will boost economic growth.

Exports, which basically means producing in India to meet demand elsewhere, help employ domestic resources. And in India resources are abundant and under utilized. Therefore, promoting exports will lead to a more efficient utilization of resources. This in turn will improve overall economic output. Buoyant exports will also give India a chance to import expensive technologies and capital goods (i.e. the foreign currency revenues from exports will help finance such imports). These is turn will help domestic producers improve their efficiency and productivity levels. Over a period of time, overall domestic productivity will benefit, making India a more competitive producer.

Opening the economy for foreign trade is one of many tools for pursuing economic growth. It, like all other tools, however, comes with its downsides. Countries integrated into global markets become more susceptible to global contagion, like the one witnessed in July 1997 when the Southeast Asian nations witnessed a run on their currencies. However, as experience has shown, an export led growth strategy needs to be pursued, as over a period of time gains more than offset the losses. And given the way Indian exports have been growing in recent months, the benefits in terms of faster economic growth should not be too far away.

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