Never let a crisis go to waste

One of the sound principles of investing is diversification. The rationale is that instead of putting all eggs in one basket, it is better to diversify, as in the eventuality of some sector not doing well, gains from others will offset the poor returns of that sector. Concentration may help in the short run but is fraught with risks, as it can significantly skew portfolio returns in the event of unexpected exigencies. What holds true for an individual also holds true for a country. As a strategy, India cannot afford to depend on just one or two sectors. It has to build strength across sectors, be it in manufacturing, agriculture, or services. We cannot have a suboptimal contribution of under 18 per cent from manufacturing. We must ensure that its contribution to overall GDP is at least one-fourth. AI is already threatening to disrupt the IT services industry, and we need to build other sectors so that they are able to contribute in a meaningful way to GDP.

We are fortunate that we are not an export-led economy, with total exports of goods and services accounting for just around 21.4 per cent. The value of goods exports is even lower, estimated between 12-14 per cent. However, even in this case, our exports are skewed in favour of the USA, which is the top trading partner, followed by China and the UAE. Saudi Arabia and Russia make up the others in the top five trading partners. Our total exports of goods, excluding services, amount to hardly $438 billion. If one excludes petroleum products from our export basket, the total goods exports are even lower, at $375 billion. While this is by no means a trifling amount, the total goods exports are negligible in the overall scheme of goods produced. It certainly does not warrant the level of noise made over the penal tariffs imposed by the Trump-led US government. That said, it makes sense for us to re-examine our overall export strategy. For one, we do need to diversify our exports to the extent that none of the trading partners can make any meaningful dent in our overall export performance.

There is a need to diversify and expand markets across all our trading partners, as well as to woo new partners that may not be the go-to markets for most other countries. The USA may be the richest – albeit heavily debt-laden – country and every exporting nation wants to make a mark there. This also makes it the most competitive marketplace. We may not be able to secure the best returns on exports to this market. With the help of EXIM Bank and ECGC, we must look at other markets – be they Greece, Nigeria, South America, or other countries in Africa. This is by no means a short-term fix but requires years of carefully cultivating markets. Given the numerous visits by Prime Minister Modi to several countries, some being the first by any Indian prime minister in decades, follow-up action is required. Several leading economies have excelled in project exports, even as aid is extended by their governments to prise open markets. India needs to do likewise. Civil construction projects – whether in railways, ports, or airports – not only help Indian companies to access global markets but also demonstrate the expertise built by our companies in executing turnkey and EPC projects.

A successful project also opens up the market for other goods from the same country. Work done by Afcons, L&T, and Ircon is still spoken about in Gulf countries. Given the execution expertise built over the years, India can certainly bid for projects worth up to $500 million or even $1 billion with help from Indian agencies. An umbrella organisation should be set up comprising various government agencies, including the Export Promotion Council, EXIM Bank, ECGC, DGFT, and banks, to be vigilant in identifying and seizing opportunities overseas.

Besides diversification and expanding our footprint, India also needs to invest in building brands. India cannot be content with being a major exporter of just tea, coffee, sugar, iron ore, and polished diamonds. It is fine to be part of the global supply chain, but we must start building our own brands. Despite being one of the largest producers of agricultural products, there are hardly any Indian brands visible in global supermarkets. Tetley was the first brand acquired by Tata Tea. Branding may not yield immediate gains and may take years, even decades, to create and popularise a brand. A brand also requires consistency in quality and the maintenance of certain standards. Value-added exports will also be a major differentiator when backed by strong brands.