India must frame policies to reduce farm subsidies and cut import tariffs on cars and take steps to improve ports and logistics, to emerge as an export powerhouse, according to the World Bank.
The Bank on Wednesday released a report titled ‘South Asia’s Turn: Policies to Boost Competitiveness and Create the Next Export Powerhouse’ and suggested a set of policy actions in four sectors — agribusiness, apparel, electronics and automotive.
With the right set of productivity-enhancing policies, South Asia, led by India, could more than triple its share in global markets of electronics and motor vehicles and come close to doubling its already significant market share in wearing apparel (excluding textiles and leather) by 2030.
In the farm sector, passive and non-targeted subsidies (e.g. water, fertilisers and minimum support price) have encouraged farmers to continue to produce low value crops using low productivity and unsustainable techniques while restrictions on agricultural markets have constrained productive private investments in higher value food products.
In order to enhance the business environment in the sector, the government needs to bring out reforms including reducing subsidies and promoting competition, according to the Wrold Bank.
Denis Medvedev, lead economist (innovation & entrepreneurship), World Bank Group, said the government needs to better target subsidies so that only the poor farmers are benefited, adding that passive and non-targeted subsidies are not encouraging farmers to adopt new technologies and (seed) varieties.
The government should also consider gradually reducing tariffs on final cars, as the prevailing high import tariffs on the completely built units are slowing down diffusion of good practices.
“The spread of good managerial practices has slowed down by high level of protection on final cars,” it said.
The electronics sector, according to the Bank, faced constraints such as underdeveloped clusters and poor trade logistics, while the apparel sector is facing difficulties to import man-made fibre, preventing upgrading and diversification.
To become a significant player in electronics, “India needs to facilitate the development of clusters (reducing transaction costs and facilitating access to large pools of skilled labour and services) and improve its trade logistics to enable the seamless import and export of hundreds of components.”
India needs to reform the duty drawback scheme to facilitate the import of fabrics for exports.
“The current system imposes delays that are unacceptable to global buyers, cutting Indian exporters from the increasingly important manmade fibre segment,” according to the report.
India remains behind on ‘global value chain’ capabilities including physical capital, human capital, institutions and logistics, it said.
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