India should leverage labour-intensive exports to capture space being vacated by China: Arvind Subramanian

At a time when all countries are scrambling to corner that open market, India needs to act quickly, Arvind Subramanian said.

March 15, 2021 / 09:18 PM IST

Keeping a clear focus on low-skilled, labour-intensive manufacturing, India needs to step up and quickly seize the global export space currently being vacated by China, former chief economic advisor Arvind Subramanian has said. At a time when all countries are scrambling to corner that open market, India needs to act quickly, he said.

Speaking at an online public lecture organised by Ashoka University, Subramanian on March 15 said China continues to lose its export share in low-skilled products such as apparel, footwear and furniture. "We estimate that after the global financial crisis, China has vacated space in these sectors of about $ 150 billion. India has been able to corner at most 10-15 percent of that," he said.

Pointing to China's share of global exports consistently reducing over the past few years as the country's economic engine stabilises after two decades of unprecedented growth, Subramanian said China's global current account surplus has also inched downwards. This follows the general idea that economies slowly move on from labour-intensive manufacturing to high-value technological exports as they climb the development ladder. This is further fuelled by wages rising over time which render economies cheaper to do business in as uncompetitive.

Embracing protectionism

Subramanian also indicated his lack of support for the current government's overall trade policy. "China is vacating export space and India is trying to fill that space through a kind of very unusual, in fact odd combination of industrial policy, protectionism and non-engagement in the most dynamic part of the world," he said.

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He added that since 2014, India has reversed the 30-year old consensus on slowly opening up the economy in favour of embracing protectionism, as a result of which tariffs have risen from an average of 13 percent to 18 percent in the last budget.

But despite the changes in global trade patterns, Subramanian added that India and China continue to remain polar opposites. "India's share of low-skilled global manufacturing exports also remain far smaller than India's share of the global labour force. China is exactly the opposite," he said.

Earlier, as part of the Modi government, Subramanian had repeatedly pushed for rapidly expanding government investment in labour-intensive manufacturing to simultaneously boost productivity, job creation and export.

Changing global scenario

Nobel laureate economist Paul Krugman who also spoke at the event, said globalisation as a phenomenon is slowing down and countries would need to take calibrated efforts to deal with the rapid changes. Krugman also stated that the idea that globalisation should always spread and trade as a share of GDP should always rise, are fallacies. "History tells us that globalisation has not been a linear process," he said.

However, Krugman said the COVID-19 pandemic is unlikely to be a significant catalyst to the overall slowing down of globalisation.
Subhayan Chakraborty
first published: Mar 15, 2021 09:18 pm

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