The initiative of the Union commerce and industry minister to announce a more comprehensive National Foreign Trade Policy (NFTP) for five years in place of Exim policies of the past is a welcome step. Hopefully, the NFTP will be able to give a broad strategic direction for facilitating India’s emergence as a competitive manufacturing hub in the world. We need to exploit the potential of export-oriented manufacturing like China. Leaving aside the conventional export-oriented industries, Indian enterprises have very little presence abroad except in pharma, automotives and components.

To some extent, the export-oriented production model is being replicated in India’s service industries. However, the job-creation potential of services is limited. An export-oriented manufacturing hub model needs to complement India’s services hub. In India, industry’s share in GDP is rather low and has actually gone down from 27.9% to 25.9% over 1991-2002. China on the other hand derives more than half of its GDP from industry.

 Development of export-oriented manufacturing requires a combination of policies, including a strategic thrust aimed at promoting excellence in corporate India. Despite many handicaps that industries may face in exporting, RIS studies find a wide variation in enterprise-level export performance within any industry. Obviously, enterprise dynamism has a role to play in producing export successes. Hence, policies should help in nurturing world-class enterprises or national champions in select sectors.

These could be selected on the basis of their past performance in export markets, their professionalism, their innovative brand-building capability, and potential to emerge as the leading enterprises internationally. They could be assisted in several ways. For instance, by financial institutions for preferential access to funds for overseas takeovers; capacity expansion; R&D and product development, brand-building and market development projects. Moreover, through support by Indian missions abroad for market information and investment opportunities, including leveraging Indian Exim Bank credit lines for securing market opportunities.

Second, RIS empirical studies have emphasised the critical role of in-house R&D activity for strengthening enterprise competitiveness. In India, we have been encouraging R&D activity mainly through weighted tax deductions in certain industries. It is arguable that a more direct support in the form of R&D subsidies for specific projects for development of products or processes and thus strengthening the competitiveness may be desirable. In order to spur rivalry through innovation, we might also consider adopting a petty patents regime which provides limited protection to minor incremental innovations made by enterprises and spurs inventive activity.

Third, Indian enterprises should be encouraged and assisted to acquire enterprises abroad to fill the gaps in their capabilities such as technology, brands, skills and access to markets.

Fourth, inward FDI policy needs to be tuned to exploit the potential of export-oriented FDI. In China, for instance, FDI accounts for nearly 50% of China’s manufactured exports and as much as 80 per cent of high technology exports. In India, this proportion is marginal at 8-10%. Studies have shown that export-oriented FDI is driven by different factors than domestic market seeking FDI. What is needed is a combination of pro-active promotion, incentives structures, and selective policies to prompt MNCs to make India global or regional production hub. Here, our ability to offer to MNCs access to a large and expanding domestic market besides other resources such as low cost but high quality human resources needs to be leveraged effectively for getting them to consider India as a base for export-oriented production. RIS studies have shown that export-obligations can be effective tools for promoting manufactured exports by MNCs in countries with large home markets, such as India. Such obligations are consistent with the WTO rules.

Finally, strategic access to markets has become an important factor of competitiveness. It is pushing countries all across the world to seek establish FTAs and RTAs to get preferential access to markets. India has over the past few years taken steps to evolve such arrangements with ASEAN, Thailand, Singapore, Mercosur, GCC and is part of the emerging SAFTA and BIMSTEC FTA. As argued in this column earlier, India’s trade policy has to take cognisance of the growing economic integration of East Asian countries in the framework of ASEAN+3 that is now a seeking to build an East Asian Economic Community (EAEC). With its formation, India will be the only large economy not part of any major trade bloc. It is therefore of critical importance for India to be part of the plans for East Asian economic integration. Alternatively, India should seek support from the East Asian countries for the proposal developed by RIS for an Asian Economic Community built in a phased manner with a core group of Japan, ASEAN, China, India and Korea (JACIK). JACIK proposal has been discussed and received support at various forums over the past year. JACIK can provide to our manufacturing industry preferential access to some of the world’s largest and most dynamic markets.

To conclude, government-industry partnership alone can enable India face the challenge of building a export-oriented manufacturing capacity. Hopefully, the NFTP will provide a vision and strategic framework for unleashing the potential of India Inc in global markets.