The Modi government is doing its utmost to stir up global investment interest in India. But in doing so, it should not overlook ecosystem flaws that can scupper its ‘Make in India’ programme. India’s recent trade data, for instance, raises some serious questions. An obvious one: How can a scenario of falling exports and imports be readily reconciled with one of a buoyant, promising economy? For optimists, it is possible that the slower fall in imports since March — as against imports falling more steeply than exports in the first three months of the calendar year — points to a recovery, coinciding with a tepid improvement in factory output. Imports in dollar terms fell by 11.6 per cent in April-August 2015, whereas exports dipped by 16.7 per cent. Interestingly, non-oil imports rose 3.4 per cent this fiscal, but here researchers point to a revival in gold imports as a driver! While it is true that falling global demand for commodities and finished goods has dragged down both imports and exports, this assessment overlooks crucial details. Analysts have pointed out that India’s exports have done worse than Asian economies since late 2014, implying that infirmities specific to Indian manufacturing, which make up two-thirds of the export basket, are a major concern. Manufacturing exports slumped to single digit growth after 2012 and finally ended up in negative territory this calendar year; this was against a growth rate of 23 per cent in 2003-08. A government committed to ‘Make in India’ should take a structural view of this crisis as it seeks to revive investment.

Researchers have observed that India, with a major composition of commodities in its export basket, has been hurt by the fall in oil and iron ore prices, displaying vulnerabilities similar to Russia and Brazil. Capital intensive commodity and engineering exports have been growing their share since 2000 at the expense of textiles, readymade garments, leather, and gems and jewellery. This led to an investment boom in 2004-09 (with technology upgradation, however, happening only in the odd sector such as automobiles), but it is also a counter-intuitive strategy for a labour-abundant country. While looking at labour reforms, it is also worth considering whether low tariffs on machinery imports, as well as a capital subsidy for textiles, contributed to ‘jobless (export) growth’.

‘Make in India’ calls for an assessment of whether free trade pacts, in force for a decade, have helped industry and exports — at a time when agreements such as RCEP (Regional Comprehensive Economic Partnership) are being negotiated. Recent signals from New Delhi have been confusing. After a high-profile meeting with leaders of domestic industry, there have been reports that India will slash tariffs on over 40 per cent of its imports from China. An intelligent approach to openness, which China has perfected over time, can serve us well. While India should focus on the domestic economy when the global situation is bleak, foreign trade policy is no less crucial.

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