When finance minister P Chidambaram last week pointed out that the rupee was not alone in slipping down a greasy pole, his officials quickly chimed in by pointing out that South Africa’s Rand, Brazil’s Real and Indonesia’s Rupaiah were in the same boat.
What they forgot to add was that in one year, while India's rupee fell 15 per cent and foreign exchange reserves depleted by 4 per cent, neigbouring Bangladesh's Taka rose 5 per cent from Tk 81.38 in August 2012 to Tk 77.75 in August this year, while its forex reserves rose a phenomenal 45 per cent from $ 11.32 billion last August to $ 16.21 billion now.
Where did the Indian government script its' story wrong and where did Bangladesh go right? Sheikh Hasina's government managed to push exports, which when added to remittances from Bangladeshis working abroad, paid for Bangladesh’s import bill, leaving a surplus of $ 2.5 billion in the 2012-2013 financial year gone by.
In the last fiscal, 2012-2013, Bangladesh whose principal export to the world is garments accounting for 80 per cent of its exports, sold goods worth some $ 27 billion to the world, a rise in earning by 11.32 per cent over the year before. In contrast, India’s exports in that year, diversified between textiles, gems and jewellery, engineered goods and pharmaceuticals among other things was a mammoth $ 300.68 billion. But the other side of the Indian export story was earnings were 1.76 per cent lower than in the year before.
Despite an extremely poor track record in worker safety and labour standards raising the ire of local and global labour and human rights bodies, cheap labour, low overhead costs and a national commitment to Bangladesh’s sole dollar-earning business has seen the country muscling out rivals like India and China for the lower, mass-manufactured end of the world-wide garments business.
In its bid to be tailors to the world, Bangladesh has turned garments businesses into privileged corporate citizens. Garments trucks are treated as VIP vehicles and police across the country has orders to clear road-blocks and traffic snarls to ensure trucks reach ports on time. Bankers have orders to make paperwork easy and to finish any banking transaction related to garments business before taking up any other work. Customs officials hassling export consignments have found themselves at the wrong-end of tongue lashings by cabinet ministers, who personally take up issues on behalf of garment-makers. All raw materials meant to feed into the garments sector comes in duty free.
Unlike India which mainly imports energy, gold, electronics and capital good, Bangladesh imports virtually everything it needs to live – rice, wheat, meat and even eggs besides machinery, cars and petroleum products. Yet it has managed to contain its import in the year gone by at 2010-2011 levels.
India by sharp contrast, has done precious little to raise its export story. Economic reforms in India have largely relied upon opening up the domestic market for imports to infuse competition, hoping it would help reduce cost and improve quality of domestic manufactures, leading to increased exports. A string of free trade pacts have been signed to help this along from an epoch making one with Asean to the latest with Japan. However, the pacts have seen imports from these economic powerhouses rising at a far faster pace than Indian exports have managed to clip along at.
India’s overall exports rose to $300 billion in 2012-13, from $18.5 billion in 1990-91, while its imports rose from $ 24 billion in 1990-1991 to $ 498 billion in 2012-2013. Or to tell the story in a different way, India’s exports rose in these 22 years some 15-fold, while its imports rose 20-fold, widening the trade gap as well as the gap between India’s current account deficit or the foreign exchange earnings and spending and fuelling the fall of the Rupee.
At the sane time, red tape and poor regulation has increased the cost of doing business in India, turning sour the growth story for Indian manufacturing. Clearances ranging from land acquisitions to shipping of manufactured goods overseas are constrained by cumbersome and expensive regulations.
Indian business has not bothered to go up the value chain or working to compress costs. Tirupur, in Tamil Nadu, a once thriving textile and garments manufacturing town, faces the grim prospect of becoming a ghost town, beaten at its game of supplying cheap garments to European and US labels by rivals in Bangladesh and Vietnam. Factory owners never bothered to try climb up the value chain to create more expensive designer clothes on which Spain, Hong Kong and China thrive.
Nor did they individually or by banding together try to build the kind of clothing brands like Zara and Mango which have made Spain a by-word in the garments world. Zara’s owners Inditex SA have increased global revenues four-fold in 5-years to nearly €16 billion ($20.65 billion) in 2012, even as recession in Spain slashed Spaniards' per-capita spending on clothing by 22 per cent between 2007 to 2011.
In fact officials running India Brand Equity Foundation, a not-for-profit organisation floated by the Indian government and Industry, agree that though India is the among the largest exporter of garments, textiles, jewellery and tea, it has not bothered to create any global brands in any of these industries. Tatas have tried to buck the trend by buying out a global tea brand.
Trade policies are still skewed with inputs often taxed at rates higher than exports, as in the case of many electronic manufactures. No policy of disincentivising finished goods imports and incentivising finished value added exports has been designed. Chinese steel industry has grown from scratch to be the world’s biggest using Indian iron ore, while Indian steel has lagged miserably behind.
No well-thought out national policies of targeting growing markets have been wrought. Belatedly India has started using its diplomatic missions to push Indian business along abroad. However, trade and economics still remain low priority for India’s tiny and over-stretched foreign service, something which can be seen by the way China routinely manages to muscle into every other gas-field, highway or dam project which India bids for in Africa, Asia and Latin America.
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| BRICS Currencies Vs Dollar in Mid-August 2013 |
What they forgot to add was that in one year, while India's rupee fell 15 per cent and foreign exchange reserves depleted by 4 per cent, neigbouring Bangladesh's Taka rose 5 per cent from Tk 81.38 in August 2012 to Tk 77.75 in August this year, while its forex reserves rose a phenomenal 45 per cent from $ 11.32 billion last August to $ 16.21 billion now.
Where did the Indian government script its' story wrong and where did Bangladesh go right? Sheikh Hasina's government managed to push exports, which when added to remittances from Bangladeshis working abroad, paid for Bangladesh’s import bill, leaving a surplus of $ 2.5 billion in the 2012-2013 financial year gone by.
In the last fiscal, 2012-2013, Bangladesh whose principal export to the world is garments accounting for 80 per cent of its exports, sold goods worth some $ 27 billion to the world, a rise in earning by 11.32 per cent over the year before. In contrast, India’s exports in that year, diversified between textiles, gems and jewellery, engineered goods and pharmaceuticals among other things was a mammoth $ 300.68 billion. But the other side of the Indian export story was earnings were 1.76 per cent lower than in the year before.
Despite an extremely poor track record in worker safety and labour standards raising the ire of local and global labour and human rights bodies, cheap labour, low overhead costs and a national commitment to Bangladesh’s sole dollar-earning business has seen the country muscling out rivals like India and China for the lower, mass-manufactured end of the world-wide garments business.
In its bid to be tailors to the world, Bangladesh has turned garments businesses into privileged corporate citizens. Garments trucks are treated as VIP vehicles and police across the country has orders to clear road-blocks and traffic snarls to ensure trucks reach ports on time. Bankers have orders to make paperwork easy and to finish any banking transaction related to garments business before taking up any other work. Customs officials hassling export consignments have found themselves at the wrong-end of tongue lashings by cabinet ministers, who personally take up issues on behalf of garment-makers. All raw materials meant to feed into the garments sector comes in duty free.
Unlike India which mainly imports energy, gold, electronics and capital good, Bangladesh imports virtually everything it needs to live – rice, wheat, meat and even eggs besides machinery, cars and petroleum products. Yet it has managed to contain its import in the year gone by at 2010-2011 levels.
India by sharp contrast, has done precious little to raise its export story. Economic reforms in India have largely relied upon opening up the domestic market for imports to infuse competition, hoping it would help reduce cost and improve quality of domestic manufactures, leading to increased exports. A string of free trade pacts have been signed to help this along from an epoch making one with Asean to the latest with Japan. However, the pacts have seen imports from these economic powerhouses rising at a far faster pace than Indian exports have managed to clip along at.
 |
| India's Trade Deficit |
India’s overall exports rose to $300 billion in 2012-13, from $18.5 billion in 1990-91, while its imports rose from $ 24 billion in 1990-1991 to $ 498 billion in 2012-2013. Or to tell the story in a different way, India’s exports rose in these 22 years some 15-fold, while its imports rose 20-fold, widening the trade gap as well as the gap between India’s current account deficit or the foreign exchange earnings and spending and fuelling the fall of the Rupee.
At the sane time, red tape and poor regulation has increased the cost of doing business in India, turning sour the growth story for Indian manufacturing. Clearances ranging from land acquisitions to shipping of manufactured goods overseas are constrained by cumbersome and expensive regulations.
Indian business has not bothered to go up the value chain or working to compress costs. Tirupur, in Tamil Nadu, a once thriving textile and garments manufacturing town, faces the grim prospect of becoming a ghost town, beaten at its game of supplying cheap garments to European and US labels by rivals in Bangladesh and Vietnam. Factory owners never bothered to try climb up the value chain to create more expensive designer clothes on which Spain, Hong Kong and China thrive.
Nor did they individually or by banding together try to build the kind of clothing brands like Zara and Mango which have made Spain a by-word in the garments world. Zara’s owners Inditex SA have increased global revenues four-fold in 5-years to nearly €16 billion ($20.65 billion) in 2012, even as recession in Spain slashed Spaniards' per-capita spending on clothing by 22 per cent between 2007 to 2011.
In fact officials running India Brand Equity Foundation, a not-for-profit organisation floated by the Indian government and Industry, agree that though India is the among the largest exporter of garments, textiles, jewellery and tea, it has not bothered to create any global brands in any of these industries. Tatas have tried to buck the trend by buying out a global tea brand.
Trade policies are still skewed with inputs often taxed at rates higher than exports, as in the case of many electronic manufactures. No policy of disincentivising finished goods imports and incentivising finished value added exports has been designed. Chinese steel industry has grown from scratch to be the world’s biggest using Indian iron ore, while Indian steel has lagged miserably behind.
No well-thought out national policies of targeting growing markets have been wrought. Belatedly India has started using its diplomatic missions to push Indian business along abroad. However, trade and economics still remain low priority for India’s tiny and over-stretched foreign service, something which can be seen by the way China routinely manages to muscle into every other gas-field, highway or dam project which India bids for in Africa, Asia and Latin America.
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| The Rupee's fall has sparked a lot of wry humour ! |
4 comments:
This is very interesting. The comparisons are apt and eye-opening. India comes out as a faltering economy, even as its political situation remains unstable and vitiated. Alas.
By the way, what were Indian earnings from garment sector during 2011-12?
The''tiny'IFS needs refurbishing both in strength and ideas to met the complex times ahead.
If only India had been able to work out the Teesta and other pacts that Bangladesh badly requires and seeks, it would have, by now, been a win-win situation for both. A case of hopes belied.
I do not think India has anything fundamentally wrong with her economy. However, fiscal mismanagement, long term commitments in non-productive asset acquisitions, retrospective changes in the rules of the game, and in general, prohibitive administrative practices for setting up new businesses, shake confidence in the market. That could have been explored more.
As for Bangladesh, the economic fundamentals are rather solid. And that has been increasingly so for last more than two decades. We have been growing at close to 5/6 percent over last two decades and no single government is unilaterally responsible for the growth. The marginal-incremental-individual on the periphery is responsible for the growth and sustenance of the community. It has been a comprehensive and complex low level equilibrium which has sustained the economy and its large internal (Domestic) markets through the consecutive financial crises of the world. We had opened up our economy long back and rather painfully lived through it. Fx Reserves, through highs and lows, have been rather stable for some years now too.
And Mahendra Ved, I do not think the comment should end with 'badly need and seek'. It could be a beginning of a mutually respectable friendship and nothing more.
Interesting perspective, Jayanta Sir. U summed it so well on where the failure emanates from and what could have been done to prevent th fall.
Cheers
Vishal
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