Reforms for Export-Led and Manufacturing-Fed Growth

Abstract

The near absence of large enterprises in the manufacture of labor-intensive products and consequent failure of such products in export markets is the reason for the paucity of good jobs for those with limited skills in India. To change this, India needs a clear focus on export expansion. It must avoid falling into the import-substitution trap that kept the country poor for decades. The rupee must depreciate sufficiently to eliminate its current overvaluation. Tariffs must be lowered and rationalized. Particularly important is to eliminate duties on synthetic fabrics and fibers. All indirect taxes must be reimbursed to exporters. Free trade agreements must be forged with countries that have potentially large markets. Trade facilitation must allow rapid movement of goods within the country and at ports. Finally, markets for labor and land must be liberalized. It will be worthwhile, though politically challenging, to experiment with autonomous employment zones that provide flexible land and labor markets within large areas.