Source: Reuters
At a time of turbulence in global affairs when economies and enterprises are looking to diversify their supply chains, derisk global operations and strengthen business resilience, India remains an attractive export partner and investment destination. Recent GDP growth data for the third quarter at 8.4% encouraged most economic analysts to raise their growth projections for coming years. The International Monetary Fund in its December report highlighted that India would contribute about 16% to the global growth rate in 2023, going up in later years1.With states as key economic growth drivers, their deeper engagement in the Indian export mission as well as closer interaction with overseas governments and firms would expand growth opportunities for all stakeholders.
Introduction
Under India’s federal structure, economic growth policies lie within the domain of both the central state governments. While the central government crafts the overall economic and industrial ecosystem, it is the states which translate policy into action and also develop their own industrial policies to encourage investment, create jobs and foster state growth. Trade and commerce with foreign countries is the responsibility of the central government under the 7th Schedule of the Indian Constitution, whereas land, agriculture, and industries fall under the domain of the states, and areas such as electricity, factories, and education come under the concurrent list2.
With exports and imports in the list of responsibilities accruing to the central government, it has set a target of US $ 1 trillion in exports of goods and the same for exports of services by 20303.
Post the disruptions in global trade and supply chains caused by the pandemic, Indian exports of goods and services reached new peaks. In the financial year 2022-23, exports of goods and services crossed US$ 776 billion4. Even within an environment of global economic slowdown and regional conflicts, export data for April-January 2023-24 did not experience moderation as compared to the same period in the previous year5.
Export Promotion by Government of India
The Government of India has intensified its policy focus on exports and instituted various policies to ensure that India leverages emerging trends relating to shifts in global value chains, emergence of new sectors, and technology-related trade. The new Foreign Trade Policy (FTP), implemented from 1 April 2023, is based on four pillars of incentive to remission, export promotion through collaborations between exporters, states, districts and Indian missions, ease of doing business and reducing cost of doing business, and finally, working on emerging export areas through developing Districts as Export Hubs and streamlining SCOMET (Special Chemicals, Organisms, Materials, Equipment and Technologies) policy6. An important component of the FTP is encouraging deeper integration of states in working towards the target of US$ 2 trillion in exports.
Export performance among the Indian states varies significantly. The top five exporting states are Gujarat, Maharashtra, Tamil Nadu, Karnataka, and Uttar Pradesh. The state of Gujarat leads by far in value exported (in Indian rupees), accounting for about one-third of total exports in 2022-23. While Maharashtra ranks second, the value of its exports is about half of top-ranked Gujarat. The top 10 exporting states contributed about 85% of India’s total exports. Large states such as West Bengal, Telangana and Odisha accounted for less than 3% each of the aggregate value of India’s exports7.
Going down to the district level, Gujarat’s exports are led by Jamnagar which has high exports of petroleum products. Surat came in next, exporting high-value gems and jewellery items. The CII paper shows that of the 30 top exporting districts, eight were in Gujarat, seven in Maharashtra, four in Tamil Nadu, three in Karnataka and two in Andhra Pradesh. Uttar Pradesh, Haryana and several other states had one district each in this list, which reveals the concentration and clustering of exports in the country.
These industrial districts have often developed high expertise and competitiveness in a particular export item. For example, Gautam Buddha Nagar district in Uttar Pradesh exports electronics from its special economic zone, led by Samsung which has one of its largest factories in the world in the district8.
India’s states enjoy capabilities and resources across a wide range of products that can be exported with a more outward-oriented focus. They also have inherent strengths that can support greater industrialization and expand manufacturing repertoire for meeting the needs of export markets. With a rapid expansion of infrastructure across the country, industrial clusters in the states are increasingly better connected to ports for both import of inputs and export of finished goods.
As per the CII report, if all states were to raise their export-to-gross state domestic product ratio to near the best levels achieved by the top exporting states, India would be well on the way to achieving the target of US$ 1 trillion of merchandise exports by 2030. Clearly, it is critical that states strategize for expanding their exports with greater intensity.
To do this effectively, a three-way collaboration between the central government, respective state governments and industry could be considered to develop state-level export strategies. A state-level export strategy includes many elements, such as attracting foreign direct investments (FDI), building requisite skills, strengthening infrastructure and logistics facilities, and ensuring better trade facilitation.
Many states have drafted policies to promote exports, and most of them have instituted industrial policies that would also benefit export competitiveness. Going to the next level would involve a mapping of the competitive items with export potential from the state, which could be identified through a consultative process.
In undertaking this exercise, the focus should shift beyond the traditional products of the state to new and emerging sectors where the state may have high capability to develop competitive advantage and where global demand is high. Sectors such as electric vehicles, light engineering goods, electronics, solar panels, and others comprise emerging areas of interest to state governments. Key markets for these products may also be identified, including through consultations with foreign and Indian embassies, to develop a targeted export promotion action plan.
Providing common services at export clusters would be an important aspect of state export policies. It is noteworthy that India’s small and medium enterprises form the core of its exports, contributing about 43% of total exports in 2022-239. A range of services, such as information on markets, tariffs, FTAs and applicable standards, effluent and environmental management services, marketing support and others could be offered at these service centres. For exporters at the local level to be able to acquire certifications and standards required by international companies, testing and laboratory facilities need to be conveniently made available as well.
A vast infrastructure program has been rolled out by the central government, the benefits of which reach down to all states. For three consecutive years, the central government enhanced expenditure on infrastructure by 33% annually10, and several major initiatives such as launch of the Prime Minister Gati Shakti program and the National Bank for Financing Infrastructure and Development prioritise the creation of multi-modal connectivity along with other facilities. At the same time, states can also work on targeted local infrastructure development for exports. The range of such export-oriented facilities at the state level would include last-mile connectivity between evacuation points (airports, ports and waterways) and manufacturing centres, border trade facilities, warehousing, etc at the border. Behind the border infrastructure development such as adequate power supply, cold chains, industrial parks and skill centres would also lie in the domain of state governments.
A closer synergy between India’s import partners and states for sourcing goods and working with manufacturers is also required. Large multi-product importing multinational companies often work with suppliers to ensure that their imports meet their quality and standards, and such efforts in state-level manufacturing clusters can serve to diversify their supply chains11.
The state governments could in turn converge with large importers to offer tailored skills and capacity building as well as other facilities.
Overseas investors too must expand their interactions with different states and attempt to identify new locations for their investment plans in India. FDI inflows are largely directed to select states, depending on state-level investment climate. Between October 2019 and June 2023, five Indian states received as much as 88% of FDI inflows12. Many state governments proactively create investment platforms to showcase their industrial policies and sectors of opportunity.
An ongoing engagement with foreign investors through a dedicated platform as well as with local embassies and missions through an investment cell would help ease of doing business and support fund inflows into the state.
Conclusion
At a time of turbulence in global affairs when economies and enterprises are looking to diversify their supply chains, derisk global operations and strengthen business resilience, India remains an attractive export partner and investment destination. Recent GDP growth data for the third quarter at 8.4% encouraged most economic analysts to raise their growth projections for coming years. The International Monetary Fund in its December report highlighted that India would contribute about 16% to the global growth rate in 2023, going up in later years13. With states as key economic growth drivers, their deeper engagement in the Indian export mission as well as closer interaction with overseas governments and firms would expand growth opportunities for all stakeholders.
(Exclusive to NatStrat)
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