In a short, two paragraph piece yesterday, Supporting the Export Effort, The Hindu briefly outlined the government’s new incentive package for exporters. I think it missed the mark.
First, the article said,
“The intention clearly is to dovetail the ingredients of this package with the broader thrust of the foreign trade policy, which seeks to reward exporters who move into newer markets in Latin America, Africa, and the Commonwealth of Independent States… For many years now, the government’s trade policy has aggressively promoted the diversification of India’s exports to non-traditional markets and products.”
and then it continued,
“India’s traditional export markets — the United States and Europe — which account for about 35 per cent of the total, are facing uncertain times and virtually flat economic growth. Since Indian exporters would be hard pressed to sustain their volumes in these markets, let alone increase them, their initiatives to get into the non-traditional markets make good sense.”
So wait. Let me get this straight. India exports a lot to the US and Europe. This is despite the fact that, for years, the government’s policy has aggressively promoted diversification in terms of the markets to which Indian producers export. But now, all of a sudden, those traditional markets are drying up, so government incentives to move into other markets are proving to be a great idea.
Really? It seems to me that, if The Hindu is correct about the effects of economic hardship on US and European markets, then producers will indeed be likely to shift to Latin American and African markets. But that won’t primarily be driven by government policy. After all, the policy of encouraging diversification, according to The Hindu, has been in place for years. No, the thing that has changed is the economic climate in those markets. Demand has shifted. America and Europe aren’t buying, but Latin America and Africa are, so that’s where producers are starting to direct their supply. It’s a logical move, and one that any decent businessman would figure out on his own without the need for any help from the government.
Yes, if The Hindu is right about about changes in Indian export markets, it seems to me that the shift is likely being driven not by anything the government is doing but by changes in demand in those markets. This is the beauty of free market economics. Without any need for grand government plans or lots of organized coordination, consumers send signals and producers direct goods to where they’re demanded. That’s why a government policy that has been in place for years seems to just now be having some effect. It’s because it’s not actually the policy that’s causing the change; it’s the market.
If the government really wants to increase exports and grow the economy, then they should reduce all barriers to trade and let producers export where they will. Producers are good at figuring out where there is demand for their products and directing them to those areas. They’re certainly much better at it than is any government bureaucrat trying to set detailed trade policy. If America and Europe really aren’t the best markets anymore, than producers will sell elsewhere, and if America and Europe surprise us all and keep buying, then producers will continue to sell there. Either way, good businessmen – the same people who build businesses and employ people and drive economic growth in India – will continue to produce and sell and keep India thriving. Leave them alone and they’ll do the work.
There’s no doubt in my mind that the government is well intentioned in this area. They want a strong economy and the benefits that exports bring. I do, too. But the best way to achieve that is by leaving it up to the experts, and in this case, the experts are the ones who actually do the exporting.
The opinions expressed in this essay are those of the authors. They do not purport to reflect the opinions or views of CCS.