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RBI has just outlined India’s opportunity in post-Covid world


Date: 25-08-2020
Subject: RBI has just outlined India’s opportunity in post-Covid world
NEW DELHI: The Reserve Bank of India’s (RBI) annual report for FY20 said exports hold the key for India to achieve a viable balance of payments situation and create a dynamic manufacturing sector.

The central bank also batted for India's inclusion in the global value chain (GVC) in line with Prime Minister Narendra Modi’s 'Make in India' push.

In his Independence Day speech, Modi said his goal for India’s self-reliance did not mean shutting the doors to the world, but altering the terms of engagement to become a part of the global value chain. He said, 'Make in India' is 'Make for the world'.

RBI in its 308-page report said India needs to compete with preferred destinations of electronic goods manufacturing to be able to attract FDI to high-end product segments. It underlined the need for India to regain its market share in active pharmaceutical ingredients (APIs) by developing cost-effective measures.

The central bank also suggested the need for India to regain momentum in labour-intensive sectors such as readymade garments and gems and jewellery through labour reforms to achieve economy of scale.

The pandemic has transformed the international environment for global value chains, with implications for the choice of product-destination mix underlying a dynamic export strategy. Rather than spreading resources thinly and widely, it is time to identify sunrise export categories that are reaping productivity gains and have dynamic linkages, both horizontal and vertical, that can strengthen footholds in emerging global value chains," RBI said.

The central bank cited a World Bank report that said that a 1 per cent increase in global value chain (GVC) participation could boost India’s per capita income levels by more than 1 per cent.

It also cited a 2019 IMF study, that suggested that global value chains can have a more positive impact on productivity than conventional trade.

Giving the example of electronic goods, RBI said the ongoing diversification of production bases presents opportunities, provided India is able to draw FDI into the high-end segments in order to compete with currently preferred destinations for companies on the lookout for new locations for manufacturing facilities.

"India has always enjoyed a comparative advantage in generic drugs and pharmaceuticals exports, being the largest supplier in the world. India needs to regain its market share in active pharmaceutical ingredients (APIs) by developing cost-effective and high-quality manufacturing processes compliant with global standards. Another group of exports in which India’s competitive edge is progressively being lost to new competition is readymade garments and gems & jewellery. Regaining competitivene ..

The central bank felt India's foreign trade policy should increasingly focus on leveraging exports via free or preferential trade arrangements.

It expects the completion of the India-EU free trade agreement and a post-Brexit free trade agreement or preferential arrangement with the UK to deliver early mover advantages.

“India also needs to tie up special trade arrangements with countries supplying rare materials that are essential to new export products which are gaining ascendancy in the competitiveness ladder. Designing a robust framework for promoting already identified sectors –auto parts; drugs and pharmaceuticals; electronics; textiles; food processing – to enhance their productivity should be a central feature of the export strategy, alongside exploitation of productivity gains from sectors such as ICT, ..

In case of traditional exports such as agricultural and allied products, RBI batted for stability in trade policy in addition to a better alignment with the goal of doubling farm incomes.

"In the context of exports of manufactures, a renewed focus on special economic zone (SEZ) type cluster-based manufacturing export launching pads may be apposite to establish centres of manufacturing excellence which also leverage on the natural link between exports and FDI.

Under the recent Atmanirbhar Bharat Abhiyan package, the government announced measures to strengthen infrastructure, logistics, capacity building, governance and administrative reforms for agriculture, animal husbandry, fisheries and food processing.

The measures include eight development schemes, four with fund allocation of Rs 1.6 lakh crore, which is much higher as compared to funds allocated to the relevant schemes for the Union Budget 2020-21. In addition, the government has also announced three governance and administrative reforms to attract investments in the agriculture sector and make it competitive.

Source:- financialexpress.com

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