Date: 24/09/2022

Relevance: GS-3: Indian Economy and issues relating to planning, mobilization, of resources, growth, development, and employment.

Key Phrases: Economic growth of nations, Atmanirbharta, global manufacturing, an open and globalizing economy, State export policies, Low tech products, Inputs at world comparable prices, Neutrality of the exchange rate.

Why in News?

• In a seminal work by Angus Maddison that tracked the economic growth of nations between 0 and 2000 AD, published by OECD in 2001, India’s share of worldwide GDP in the 1st century AD was estimated at 32.9 percent and it declined post-colonization.

Change over time in India’s share in the world economy:

• GDP:
  • In the 11th century AD, India continued to be the biggest economy with a share of 28.9 percent of global GDP.
  • Over the next seven centuries, before the beginning of colonial rule, India’s share in global GDP declined to 16 percent, which was still higher than India’s share of the world population.
  • With the onset of colonial rule and its concomitant wealth drain, India’s share in world GDP was reduced to a mere 4 percent by 1950.
  • Today, India’s share in world output remains at 4 percent in nominal terms while its share in world population has increased to 18 percent and rising.
• Manufacturing:
  • India’s share in global manufacturing, which was also more than 20 percent before the deindustrialization under colonial rule plummeted to 2 percent by 1947. By 2019, India has managed to increase it only to 3.1 percent.

Effect of colonization:

• Historically, India has been a trading nation. Indian traders travelled with their much-demanded goods to West Asia and East Africa, Cambodia, Indonesia, Myanmar, Levant, and Europe at various periods from the 2nd century BCE until colonization. Indians prospered when India was a leader in global trade.
• Colonial rule forcibly put a stop to that prosperity and forced us to become a supplier of raw materials and indentured labour.
• Consequently, our share in world exports declined to a mere 2.53 percent in 1947.
• This resulted in dramatically rising levels of poverty, frequent famines, and a population that was merely at survival levels with a per capita annual income of a mere ₹11,570 in 1950.

Economic liberalization:

• Due to the liberalization of the nineties, the share of trade in global trade flows went up from 2.1 percent in 1950 to 2.7 percent by 2010.
• Since then, however, India’s share in global merchandise trade has stagnated at less than 2 percent.
• Its share in services, buoyed by IT-enabled software services, has increased from 0.5 percent in 1995 to 3.5 percent in 2019.

How should Atmanirbharta be defined?

• It should be defined in terms of restoring India’s share in world GDP and global manufacturing to at least the same level as it was before the beginning of colonial rule.
• Therefore, India must set the target of achieving at least a 16 percent share in global GDP and a 20 percent share in global manufacturing for true Atmanirbharta.
• True Atmanirbharta must be understood as restoring India’s position in the world economy and locating our efforts in the context of an open and globalizing economy.

Expanding Export Potential:

• India cannot achieve its goals of reaching upper middle-income economy status without ramping up its exports and encouraging higher inflows of foreign investment and technology.
• India’s mammoth population does not directly translate into a large economy with high levels of purchasing power.
• Every country attempting to successfully make the transition from a low-income economy to an upper-middle-income economy has had to expand its exports of both goods and services.
• Successfully ramping up the exports will ensure that our businesses remain globally competitive and provide the best quality goods and services to our domestic consumers.
• Achieving global scales of production, improving the quality of our services to world standards, and promoting goal-oriented R&D are efforts that will yield the desired goal of a higher share in global trade and manufacturing. It will also generate high-quality employment.

Suggestions to improve the export:

• State export policies:
  • First, instead of preparing a pan-India Exim policy, which is akin to Brussels producing an export policy for the entire European Union, each State should be encouraged to design and implement its export promotion policy.
  • These should have clearly stated timebound goals and the selection of priority export sectors.
  • This will bring about a much-needed focus on exports in every State and help generate quality employment.
• Low tech products:
  • It is neither necessary nor even practical to aim only for hi-tech exports with high levels of value addition.
  • As several countries have demonstrated, exports of minerals and agro-products, and low-tech products like toys and garments or services such as medical, education, and mass tourism are as valuable in generating good quality employment and raising per capita incomes.
• Inputs at world comparable prices:
  • Export industries should get their energy and other inputs at world comparable prices.
  • They should not be expected to subsidize household consumption by being charged higher tariffs for their energy, logistics, and raw material inputs.
• Neutrality of the exchange rate:
  • It is important that the RBI ensures neutrality of the exchange rate between exports and imports. Exports should not be penalized by an over-valued exchange rate.

Conclusion:

• Atmanirbharta should be seen as a means for regaining India’s share in the global economy while simultaneously improving the quality of life for the common Indian.
• To achieve these targets India needs to design a detailed strategy and identify sectors that can serve as potential export-growth drivers, create efficient ecosystems for traders, target specific countries for particular exports, and make necessary course corrections.
• MSME exporters need 360-degree support within the country to remain resilient and globally competitive, especially during unforeseen circumstances hampering the supply chain and global trade.
• India will require a huge concerted effort from all stakeholders to restore India’s share in global trade to pre-colonial levels.

Source: The Hindu BL

Mains Question:

Q. India must boost exports and promote greater inflows of foreign investment and technology if it is to become an upper-middle-income country. Discuss.