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An analysis of export preparedness Index by NITI Aayog

IBEF, Knowledge Centre

Sep 14, 2020 17:16

India is a vast and geographically diverse country with 28 States and 8 Union Territories (UT). India plans to become a US$ 5 trillion economy by 2024 and the target is basically linked with export-oriented approach. India can increase its efficiency with a focused policy shift towards integration with major global supply chains. The efficient strategy can help the country in achieving the required double-digit growth. India’s export will require a boost through various policy mechanisms, including the improvement of Ease-of-Doing-Business (EoDB), promoting size and scale as well as adapting to global standards. The necessary policy changes would need strong engagement with the States and UT to identify export opportunities and develop their institutional structures.

Thus, NITI Aayog, the think tank of the country, took a substantial step by developing the first-ever Export Preparedness Index (EPI) 2020 for Indian states. The report was prepared in partnership with the Institute of Competitiveness. The Index ranks States and UT on critical parameters required for promoting the country’s exports. The idea of developing such report came in 2019 at NITI Aayog. The structure of the EPI includes four pillars – policy, business ecosystem, export ecosystem, and export performance – and 11 sub-pillars – export promotion policy, institutional framework, business environment, infrastructure, transport connectivity, access to finance, export infrastructure, trade support, research and development (R&D) infrastructure, export diversification, and growth orientation.

 

Introduction

There has been a massive shift in the global trade because of the ongoing COVID-19 pandemic. Manufacturing in the country was halted, thereby effecting the export badly. The domestic demand was increasing which might strengthen imports faster than exports, leading to a widening deficit.

Though it was seen that Prime Minister Mr Narendra Modi has sought to solve the problem by exhorting Indians to become “Aatmanirbhar” or self-reliant, one of the main components to strengthen domestic demand and supply chains. The Government has planned to improve exports through trade policies and reforms such as Goods and Services Tax and by incentive creation through the Merchandise Exports Scheme, Service Exports from India Scheme and Trade Infrastructure for Export Scheme. In FY20, total export from India (merchandise and services) stood at US$ 528.45 billion, while total import estimated at US$ 598.61 billion according to data from the Ministry of Commerce and Industry. It was seen that the contribution of export from merchandise was US$ 314.31 billion and from services was US$ 214.14 billion in 2019-20.

In 2020-21 (till July 2020), total export from India (merchandise and services) stood at US$ 141.82 billion, while total import was estimated at US$ 127.76 billion according to data from the Ministry of Commerce and Industry. India registered a trade surplus of US$ 14.06 billion during April-July 2020.

It was seen that around 70 per cent of the India’s export was dominated by five states – Maharashtra, Gujarat, Karnataka, Tamil Nadu, and Telangana.

The survey established that the states that trade the most are the most competitive and run the largest trade surplus. It added that the state’s Gross State Domestic Product (GSDP) is highly correlated with its export share in GSDP. In recent times, there has been an increase in the number of Indian states participating in export related activities. Some states have done exceptionally well while others need a more focused analysis to develop their export markets. This is because a one-size-fit-all policy will not work for all the states owing to their different characteristic strengths and competitive advantages. Therefore, the efforts of Central Government cannot alone determine the export, it requires active participation from state level authorities and identification of export focussed areas based on the state’s core growth drivers. The Government has focused on creating export hubs in each district depending upon the local products made there. The slogan given the Government is “Think locally and act globally” along with latest ideology, “Vocal for Local”, to develop India to become a key player in the global supply chain.  

 

Methodology

EPI intends to evaluate the readiness of the states in terms of their export potential and their performance. The main goal of the index is to encourage competition across all Indian states to:

  • bring favourable export promotion policies
  • ease regulatory framework to prompt subnational
  • promotion of exports
  • create necessary infrastructure for exports, and
  • help in identifying strategic recommendations for improving export competitiveness.

 

The structure of EPI consists of four pillars and 11 sub-pillars to enable precise and fair assessment of all the Indian States and UTs.

The four pillars and the rationale behind selection of each of them are given below:

  • Policy: A comprehensive trade policy provides a strategic direction for exports and imports. This was incorporated to estimate whether a state has introduced enabling policy measures to steer export-led growth. It also highlights the exact measures and policy mechanisms that states have adopted to enable exporters to be competitive. The weightage of this was 20 per cent (10 per cent for Export Promotion Policy and other 10 per cent for Institutional Framework.
  • Business Ecosystem:  An efficient business ecosystem can assist states attract investment and create an enabling infrastructure for individuals to initiate start-ups. This pillar tells about the core infrastructure facilities and how states fare in terms of creating such an ecosystem. The pillar handles about the multidimensional aspects of developing a successful business ecosystem such as labour, innovation, power, IT, logistics, banking and so on. It has four sub- pillars, which are business environment, infrastructure, transport connectivity and access to finance, having weightage of 10 per cent each.
  • Export Ecosystem: This pillar aims to assess the business environment, which is specific to exports. It takes into consideration indicators that emphasize the research and development infrastructure, and the trade support available to the businesses in the states. This has three sub-pillars: export infrastructure, trade support and R&D infrastructure with weightage of 10 per cent, 5 per cent and 5 per cent, respectively.
  • Export Performance:  This is the only output-based pillar and examines the reach of export footprints of States and Union Territories. It focuses on two sub-pillars: growth of exports and export diversification, having weightage of 10 per cent each.

 

India is a vast and diverse country as states were categorised according to their sizes and their geographical outreach. In order to make export readiness fair, states were segregated into three categories: Major States (Coastal and Landlocked), North-Eastern and Hilly States, and Union Territories/City States/Small States, based on the area to account for the spatial variations across states.

The calculation steps included:

  • Indicator Selection and Data Collection
  • Dealing with Missing Values
  • Data Transformation
  • Aggregation

The final framework of the EPI was based on essential feedback from states, UTs and organizations like Export-Import Bank of India (EXIM Bank), Indian Institute of Foreign Trade (IIFT) and Directorate General, Commercial Intelligence, and Statistics (DGCIS). The data was primarily provided by State Governments. For some of the indicators, Reserve Bank of India (RBI), DGCIS and Central Ministries were consulted.

 

Key Findings

Overall, India has scored an average of 39 on the index indicating the tremendous potential it holds towards transforming into an export-based super economy. When the average is broken down into pillars and sub-pillars, a much clearer picture emerges. The highest scoring pillars were both policy and business ecosystem, while export ecosystem was the least scoring pillar.

It was seen that most of the Coastal States are the best performers. Gujarat, Maharashtra, and Tamil Nadu occupy the top three ranks, respectively. Six of the eight coastal states feature in the top ten rankings, indicating the presence of strong enabling and facilitating factors to promote exports. In the landlocked states, Rajasthan has performed the best, followed by Telangana and Haryana. Among the Himalayan states, Uttarakhand is ranked the highest, followed by Tripura and Himachal Pradesh. Across UT, Delhi has performed the best, followed by Goa and Chandigarh.

There is a high scoring range amongst Indian states on the EPI with Gujarat having the highest score of 75.14 and Jammu and Kashmir with the lowest score of 12.27. Gujarat stood first with a strong display in various sub-pillars such as export promotion policy, business environment, and Infrastructure.

 

Conclusion

The EPI reported that Indian states performed well on average across the sub-pillars of Exports Diversification, Transport Connectivity, and Infrastructure. The average score of Indian states in these three sub-pillars was above 50 per cent. Moreover, with low standard deviation seen in export diversification and transport connectivity, the averages are not skewed to the higher side by a few over-achievers. However, Indian states should also focus on other key components to improve export competitiveness.

Steps such as ensuring the participation of exporters in important trade fairs and buyer–seller meets, dissemination of information like market studies, design trends, export trends, standards and specifications, and trade enquires across exporter networks have facilitated the states to achieve better export preparedness.

The report also highlights that export orientation and preparedness are not just restricted to prosperous states. Even emerging states can undertake dynamic export policy measures, have functioning promotional councils, and synchronize with national logistical plans to grow their exports.

Based on the findings of the report, export promotion in India faces three fundamental challenges:

  • intra- and inter-regional disparities in export infrastructure
  • poor trade support and growth orientation among states; and
  • poor R&D infrastructure to promote complex and unique exports.

There is a need to highlight on crucial strategies to address these challenges: a joint development of export infrastructure, strengthening industry-academia linkages, and creating state-level engagements for economic diplomacy. These strategies could be supported by revamped designs and standards for local products and by harnessing the innovating tendencies to provide new use cases for such products with adequate support from the Centre.

To achieve the target of making India a developed economy by focusing on ‘Atmanirbhar Bharat’, there is a need to increase export from all the states and UT. Thus, EPI offers invaluable insights on how states can attain this goal.

The complete report is available on the NITI Aayog website (https://niti.gov.in/sites/default/files/2020-08/Digital_ExportPreparednessIndex2020_0.pdf).

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