GDP Numbers: Time to focus on Exports

The Q2 GDP numbers are in, the following chart is shocking

A handful of service segments which made up for 44.3% of the GVA contributed to nearly 60% of our growth last year. All services together contributed to 3/4th of GVA growth.

Owing to the slow growth, Manufacturing and Agriculture contributed to just 25% of India's growth in the first half of this year

When one looks at FDI, while there has been growth for sure

• FDI for 3 key manufacturing related categories has gone up 40% in 4 years)
• Electrical machinery, for example, had received 3.2 B in FDI between 2000 and 2013. Between 2014 and 2017, it received a further 3.7 B, a huge jump.

However, the overall share of Manufacturing FDI (of all FDI) varies anywhere between 16% to 33% depending on whether we consider computer hardware and software in Manufacturing and services). Either way, with the express aim of trying to drive Manufacturing in India, one would have expected a much higher share for Manufacturing in FDI.

In the meanwhile Imports surge- Specifically in Electronics and Machinery. The overall imports minus exports picture is as follows

India's imports are growing at a much faster pace than Exports. Apart from Gold, import of electronics and machinery has surged over the last 2 years. This is counter to the agenda of Make in India

The Electronics and Machinery Sectors

Things are getting worse in these two sectos.

In 2016, electronics and machinery made up for 20% of India's imports. In 2013, they made up for 14% of India's imports.

In the first 7 months of this Financial year, these two sectors made up for 50 Billion of imports, versus 38 Billion 4 years ago. The bulk of this growth happened in the last 12 months. These two items make up for more than 50% of India's trade deficit.

China exported 846 Billion dollars worth of these items. This translates to 19% market share for China.India's market share is a paltry 0.6%. If India were to replace its entire imports with local production, India's theoretical share would go up to 1.7%, again a very paltry number. In other words, with very little gain in market share, India could wipe out a large proportion of its trade deficit. This, in turn, would benefit the economy in many ways.

Way Forward

In my view, India must do 3 things quickly to get the desired outcomes

Focus: In my view, the PM must focus on these two sectors over the next 18 months and do whatever it takes to ensure that India builds a reasonable sized local production capacity. Firstly he needs to quickly build an expert team that will be able to advise him on how to ensure success over the next 18 months.

Input Costs and Profitability: The PM and team must decide how to make it lucrative for those setting up these plants. This could mean giving land for free, giving tax waivers, building infrastructure or anything else. The idea is to tempt the biggest local and international players to consider investing in India

Execution Ease: A GST like State plus Central council must be created specifically to drive these two sectors so that both Centre and States can work together to ensure these investments manage the bureaucratic haze quickly and no one is caught in the permission raj.

Outcome-> Building the ecosystem will develop skills of Indians apart from creating jobs. In the long run, this will lead to other such companies coming to India quickly driving up India's market share and saving precious foreign exchange apart from creating millions of jobs in India. This could push India's growth to above 9% over the next 3 years. Anyone listening?