India needs to focus on exports: World Bank economist

Wednesday 10th April 2019 06:26 EDT

World Bank Chief Economist for the South Asia Region, Hans Timmer said that India's economic growth in recent years has been "too much" driven by domestic demand and its exports were about one third of its potential. Timmer praised attempts to liberalise markets within India and said "that is what is needed to become more competitive." In an interview, he said, "At the same time you've seen also of the last couple of years that the current account deficit widened- an indication that increasingly growth came from the non-tradable sector, from the domestic sector, and that makes it difficult to export more."

He said in the last five years, India's overall growth was "too much" driven by domestic demand, which resulted in double digit growth of imports, and four to five per cent growth in exports. "In more recent months, that turned around somewhat. But the broader picture was that's a minus," he said. Timmer said that the pluses were, "we have seen the GST trying to create more flexibility within the country, so that it's easier to trade between states. That's what you need if you want to trade also with foreign countries."

Responding to a question, Timmer said the focus of the next government should be on reducing the stimulus of domestic demand. He said, "That would be one. I think looking at trade liberalisation on the import side, that would be another to create more competition. I would look at what people feel as impediment in the labour market. Is it difficult to go to these new jobs? What about the startups of young people do they feel restrictions or not?" He added that it is also about female labour force participation.

"I think, the most important thing is the understanding that you need export-led growth because that's where you increase productivity when you compete in international markets; that's where you gain knowledge by interacting with competitors and with customers abroad. And so, it is that mindset." The top World Bank official said India is only exporting 10 per cent of its GDP. "What they should be exported is 30 per cent of the export of GDP, given all their characteristics. India is a big country, so normally a big country doesn't export that much in per cent of their GDP because when you're small you're a lot more open. But even for India, 30 per cent would have been normal if you look at the experience of other countries. It's only 10 per cent. So that's an enormous gap and the gap is widening in the last couple of years."

Timmer also added the South Asian countries need to learn from China. "The fact that China has been so competitive for so long means that China did something right whereas South Asia didn't do it right. There was a clear focus in China to have export-led growth and to integrate into global markets. And you see a sharp increase in productivity at all. This is not an explanation that we couldn't compete. Somehow, the Chinese did it better than South Asia," he said.

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