South Asia’s Turn: Policies to Boost Competitiveness and Create the Next Export Powerhouse’ Report by World Bank

•  World Bank has recently released report titled ‘South Asia’s Turn: Policies to Boost Competitiveness and Create the Next Export Powerhouse’. The report has suggested a set of policy actions in four sectors — agribusiness, apparel, electronics and automotive.

Highlights of the report:

• With around one million people entering the workforce each month and a growing urban population, South Asia can seize the opportunity to become the next manufacturing and export powerhouse through the right mix of reforms and investments.
• South Asia will be home to more than a quarter of the world’s working adults by 2030 and should take advantage of a confluence of positive forces, such as favorable demographics, increasing education levels, growing cities, and rising labor costs in East Asia. To realize this potential, countries should work diligently to increase regional and global integration, take advantage of agglomeration economies, strengthen firm capabilities, and improve the business environment. The region’s great competitiveness potential can be shown by the success of its leading firms.
• South Asia’s leading firms have risen to standards of global excellence, demonstrating that world class levels of operational performance, efficiency, and innovation can be achieved with the right management, technology and worker training. These flashes of brilliance across a growing number of areas, locations, and leading firms can provide inspiration for reforms and serve as examples for millions of rising firms in the region.”
• Overall, however, South Asian countries have underperformed in terms of both the quantity and quality of their exports – fundamentally because most firms in South Asia have low productivity which is the main driver of sustained competitiveness.
• To better connect and expose South Asian firms to international good practices, governments should deepen reforms to improve the capabilities of firms to participate in global value chains, which will require making it much easier for exporters to import what they need, gradually reducing tariffs, while improving trade logistics. Policymakers can encourage the flow of resources to more productive firms by actively managing urbanization and reducing congestion constraints, as well as fostering productive agglomerations of firms next to pools of qualified workers with easy access to key domestic and export markets.
• With support from governments, firms can improve their productivity and competitiveness by investing more in training their workers and managers, innovating to introduce new products and processes, as well as making greater use of the Internet to buy, sell, market, or manage their inventory.
• Together, these proposed reforms and investments will help the countries of South Asia take a turn toward realizing their great competitiveness potential.

Report and India:

• India must frame policies to reduce farm subsidies and cut import tariffs on cars and take steps to improve ports and logistics, to emerge as an export powerhouse.
• With the right set of productivity-enhancing policies, South Asia, led by India, could more than triple its share in global markets of electronics and motor vehicles and come close to doubling its already significant market share in wearing apparel (excluding textiles and leather) by 2030.
• In the farm sector, passive and non-targeted subsidies (e.g. water, fertilisers and minimum support price) have encouraged farmers to continue to produce low value crops using low productivity and unsustainable techniques while restrictions on agricultural markets have constrained productive private investments in higher value food products.
• In order to enhance the business environment in the sector, the government needs to bring out reforms including reducing subsidies and promoting competition.
• So, government needs to better target subsidies so that only the poor farmers are benefited, adding that passive and non-targeted subsidies are not encouraging farmers to adopt new technologies and (seed) varieties.
• The government should also consider gradually reducing tariffs on final cars, as the prevailing high import tariffs on the completely built units are slowing down diffusion of good practices.
• About electronic sector in India
• The electronics sector, according to the Bank, faced constraints such as underdeveloped clusters and poor trade logistics, while the apparel sector is facing difficulties to import man-made fibre, preventing upgrading and diversification.
• To become a significant player in electronics, “India needs to facilitate the development of clusters (reducing transaction costs and facilitating access to large pools of skilled labour and services) and improve its trade logistics to enable the seamless import and export of hundreds of components.”
• India needs to reform the duty drawback scheme to facilitate the import of fabrics for exports.
• “The current system imposes delays that are unacceptable to global buyers, cutting Indian exporters from the increasingly important manmade fibre segment.
• India remains behind on ‘global value chain’ capabilities including physical capital, human capital, institutions and logistics.

By: Vishal