50 I BUSINESS TODAY I August 25 I 2019FTAs have helped India expand its export base, the trade balance has
not been in our favour so far. Hence, the critics of RCEP (there are
many within the government and outside) argue that it is, in effect,
an FTA with the other three negotiating partners – Australia, New
Zealand and China. Given the ballooning trade deficit with China,
the sceptics are wary of another surrogate FTA with the Asian giant
in the form of RCEP. “We have not benefited from FTAs in the past,
and now that we are negotiating RCEP, automobiles should be kept
out of it to prevent China from getting a backdoor entry,” says Vin-
nie Mehta, Director General of the Automo-
tive Component Manufacturers Association
(ACMA).
That the country should avoid non-
lucrative FTAs is a valid point. And no one
could have questioned the minister’s deci-
sion had India limited its export ambition
to opportunities which are solely trade-
positive. Unfortunately, that is not the case.
India is increasingly pushing its exports to
drive overall growth. And a missed negotia-
tion of this scale does not augur well as none
of the tall targets of the Narendra Modi gov-
ernment can be met without ramping up its exports. This is espe-
cially true as other growth engines have not delivered as expected.
Private investment is not picking up and domestic consumption
has slowed down. Government expenditure has been pushing
growth for the past couple of years, but that alone is not enough
to take the country’s real GDP growth to 8 per cent in the current
financial year (it was below 7 per cent in FY2018/19). In fact, India
has to almost double its GDP growth to become a $5 trillion econ-
omy by 2025 as envisioned by Prime Min-
ister Modi. Even Chief Economic Advisor
Krishnamurthy Subramanian pointed out
that the prime minister’s $5 trillion dream
will be possible only if “the country’s invest-
ments grow, and for investments to happen,
domestic consumption alone is not enough,
an equal or bigger support through exports
is also essential”.
Subramanian dwells on this in great de-
tail in the Economic Survey 2018/19. He has
examined the economic growth drivers pur-
sued by other countries and found that in-
vestments and exports play a critical role in
all growing economies. “The overwhelming
evidence across the globe, especially from
China and East Asia in recent times, is that
high growth rates have only been sustained
by a growth model driven by a virtuous cycle
of savings, investment and exports, cata-
lysed and supported by a favourable demo-
graphic phase,” he states.
The survey also points out that all three
macro variables – shares of GCF (gross capi-
tal formation), savings and exports in GDP- increased as the countries became richer.
For instance, when China’s economy saw
an uptick measured by the rising GDP per
capita, the country’s savings, investments
and exports increased further. The same
9.71%
Fall of India’s
merchandise
exports in June
2019 on a
YoY basis2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10GDP change (%)
Change in export (%)
Change in total expenditure (%)
Change in private consumption (%)14.9814.98
13- 9 4
TIME TO ACT
Consumption, expenditure, private investment and
exports are the primary drivers of GDP growth. In the
last few years, private investment and exports have been
sluggish and government expenditure and consumption
have driven GDP growth. But both are slowing, and we
need exports to pick up for high GDP growth7.6 6- 3 4.5
3.09- 8 6
9.2 10.415.621.615.827.9421.625.2814.7128.19