Government must support export-oriented units for creating more jobs

Government must support export-oriented units for creating more jobs
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Government must support export-oriented units for creating more jobs

Highlights

The gems and jewellery sector, handicrafts, textiles and apparel industries provide skilled and semi-skilled jobs to lakhs of workers

The consistent rise in merchandise exports during the current fiscal has prompted Commerce Minister Piyush Goyal to declare with confidence that the 2020-21 target of $400 billion is in sight. At a time when the pace of economic revival has been disrupted by the third Covid wave, exports have turned out to be one of the brightest spots on the horizon. Over the first three quarters, April to December 2021, these have risen by as much as 26.5 per cent compared to the same period in 2019. Exports during December alone reached a record level of $37.29 billion.

Though this has sparked tremendous optimism in the Commerce Ministry, the fact is this could be a temporary phenomena. The buoyancy in merchandise exports is probably in line with the general rebound in global trade last year owing to pent up demand. Clearly this has been recognised by policymakers who are currently trying to ensure the export effort is buoyed up by bilateral trade pacts in key markets.

This is critical since India has already turned down the opportunity of joining the Regional Comprehensive Economic Partnership (RCEP) on the ground that it would hurt the interests of domestic industry. The RCEP is one of the world's largest trading blocs. Entry into the grouping could have been beneficial in the long run though it may have led to a flood of Chinese origin imports in the short run. As a counter-balance therefore, the country needs to enter into more bilateral trade arrangements so that Indian goods can find preferential access in major markets. The urgency to do so needs to be viewed in the context of the fact that right now favourable market access is only available as 'most favoured nation' under the provisions of the World Trade Organisation. This ensures that all member countries must offer the same tariffs to their trading partners. But bilateral pacts enable countries to go beyond this level to offer preferential tariffs.

Since India's biggest trading partner is the US, it was hoped that a free trade agreement could be tied up after the Biden administration took over. The new administration, however, dashed these hopes by making it clear it was not interested, at least for the time being. This was disappointing as there had been considerable hype over an Indo-US trade agreement during the Trump administration. As for another large market, the European Union, talks had begun for an FTA over a decade ago. Differences had arisen over many issues with rigidity on both sides. The EU was concerned over high tariffs on automobiles, wine and spirits while Indian negotiators were unhappy over limited access to professionals working in that region. Another issue that emerged in recent years was the need to delink investment from the FTA. On the plus side, the contentious investment aspect is now being set aside to be incorporated into a separate bilateral investment pact as sought by this country. Prospects are thus bright for resuming the negotiations after a long gap.

What can be achieved more rapidly, however, is an FTA with the United Kingdom. Talks have already begun and an early harvest agreement is likely to be concluded within a few months. The upside of these negotiations is that the UK is as keen as India to enter into a trade agreement. After Brexit, it is also looking to enter into bilateral trade pacts. But, like India, it too is facing roadblocks. The US has indicated it is not ready right now, while trade ties with the EU are severely strained over many issues.

It is thus keen to move ahead with negotiations with a country viewed as one of the largest global markets. Besides, it looks forward to India 's future growth into one of the world's biggest economies. Some projections say it will become the third largest by 2050. It is this long term vision that has prompted the UK to launch talks that should conclude by the end of 2022.

Other bilateral trade agreements are also being pursued by this country, notably with Australia and the six-member Gulf Cooperation Council (GCC), which includes Saudi Arabia and the UAE. The latter is one of India's biggest trading partners. Talks are also reportedly set to begin also with Canada and Israel.

The focus on trade has come at a time when the unemployment rate in the country has been on a steep upward curve. Latest data of the Centre for Monitoring Indian Economy shows that unemployment in December reached a four month high of 7.9 per cent. What is not often recognised is that export-oriented industries are also major employers. The gems and jewellery sector, handicrafts, textiles and apparel industries provide skilled and semi-skilled jobs to lakhs of workers. In fact, after the lockdown in March 2020, the migration of millions of workers to their rural homes crippled these sectors. Rising exports will thus expand job opportunities especially in the informal sector.

Some estimates by economists like Arvind Panagariya have shown that small and medium size export-linked units ensure 250 times more jobs than large formal sector industries with the same level of investment. Similarly in rural areas, setting up export-oriented agro-based industries can increase job prospects significantly.

It is thus imperative for trade to become an integral aspect of economic policy making. Acceleration in exports has always pushed growth in most countries including the tiger economies of Southeast Asia as well as China. Greater support thus needs to be given to export-linked industries especially since many are small and medium enterprises that have suffered due to the pandemic. Finance Minister Nirmala Sitharaman needs to keep the critical importance of exports in mind while formulating the budget. One can only hope that enough support is provided to this critical segment of the economy to enable it to meet the competitive challenge of global markets.

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