The government needs to give direct push to MSMEs to ramp up export of consumer goods to reap the benefits of its comparative advantage over products made in China in the post-pandemic world, a report said.
India can look in the range of incremental exports growing by $20 billion (in the least favourable outcome) to a significant $193 billion jump in the five-year horizon, only if it builds its capabilities and captures share from China, according to SBI's Ecowrap report released on Thirsday.
"Although, the revealed comparative advantage (RCA) for India is lower than China as far as capital goods exports are concerned, India can still capitalise on this opportunity to push its capital goods exports. "However, the bigger opportunity right now is in the consumer goods sector, in which India has an RCA greater than China," said the report.
Looking at the micro, small and medium enterprise (MSME) profile of the country in terms of the consumer goods sector, the biggest concentration is in the textile and clothing sector (17.30 per cent), food products (12.30 per cent) and crop and animal production (10.0 per cent).
"Although we do have a comparative advantage in textiles and animal goods, in food products we are not competitive. The government can give a direct push to this sector, so that MSME firms involved in food products manufacturing get benefitted," the report said. It further said that although 2020 is a lost year, in terms of trade, India can think long-term and build relations so that it can occupy the space vacated by China.
"When we look at the value of merchandise exports, for 2019, China exported $2.5 trillion worth of goods, while India exported $0.3 billion worth of merchandise. This means that China exports 7 times the amount of goods India exports in a year," it said. Taking a look at Vietnam, which has rapidly captured merchandise exports, it is also touted that a fair number of the factories being rapidly put up in Vietnam are owned and financed by the same Chinese companies being dislodged in their home country, the report said.
However, it added that there is no denying the fact that Vietnam has gained in this trade war, with its cheap labour and cheap currency. "How India maneuvers the geopolitical space will clearly determine how successful it is in becoming an export behemoth. With just 1.7 per cent in world's merchandise exports, India has a long road ahead to catch up with China. But it must be now...," it asserted. As per the report, India is one country that can fulfill global demands with its sizeable population. However, India will have to take a hard look at its labour reforms and currency outlook to gain market share.
Although COVID-19 can dampen demand for the coming years, it does provide an opportunity for global trade rebalancing, and India needs to play its cards right to gain something out of this catastrophe, said the SBI Ecowrap report.