Boosting exports: Beyond formalisation – reforming MSME financing

My recent columns have been about India’s Coastal Economic Zone (CEZ) policy, including comparisons with, and possible lessons from China. If we step back and consider India’s recent export performance, the need for, and limits of, CEZ policy become even clearer. Recent news reports highlight the country’s sluggish export performance in recent years. The problems began earlier, but demonetisation, a less-than-optimal rollout of the Goods and Services Tax (GST), and the mess in the banking sector—with new cases of fraud piled on a legacy of distressed assets—have prolonged the pain.
Although export growth has picked up, labour-intensive sectors such as textiles, jewellery, and leather have continued to lag. Anaemic exports in general can contribute to macroeconomic vulnerabilities, especially when oil prices remain high, but the big issue is really the need to create more good jobs, and labour-intensive exports have to be part of the strategy of meeting that need. In my last column, I noted that China is emphasising innovation, finance, and talent for its major CEZs, in ways that India has not. In India’s case, even the supply of workers with basic skills suitable for a range of labour-intensive production is relatively small. CEZ policy has to address this in ways that China did even before it began pursuing a more capitalist route: in short, India still needs to improve the basic health, nutrition and literacy of much of its population. This seems like a tall order for CEZs, but one can think of historical examples of employers, enlightened or just pragmatic, who found that it made sense to invest in their workers and the workers’ families to increase productivity. So, it is not outside the realms of possibility.

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