The paper follows a methodology where exports are seen as the endogenous outcome of cost reduction practices in the domestic economy characterized by greater industrial differentiation and specialization; it is this competitiveness in the domestic environment that guides exports and induces the support bases such as infrastructure, human capital formation, R&D, etc., not the other way around. On the other hand, the actual behaviours of Indian manufacturing exports (and productivity growth) could be seen as mere (passive) adjustments to demand conditions created by liberalization of trade (exchange rate adjustments), which shifts the focus to an analysis of as to why big corporate firms, despite evidence of periodic productivity growth, could not sustain exports growth (and productivity growth). The focus then is on the nature of productivity growth. Lack of exports could be due to the fact that the observed productivity growth in India could be a reflection of increasing returns to scale phenomenon that (i) takes place with given technology (and endowments, preferences, etc., remain the same) and (ii) could be associated with higher market power, reducing export competitiveness.

No abstract

This article maintains that the need to increase the share of manufacturing (in real terms) in gross domestic product (GDP) from the present around 15 per cent to around 25 per cent is an important policy focus but signifies an arduous task in the context of intense global competitiveness. It should allow for providing encouragement to firms to search for greater markets backed by a concentrated effort to carry out narrow specialisations in a few manufacturing related tasks/products. It can only contribute immeasurably towards encouraging ‘inquiring minds’ that in turn supports a tendency towards knowledge-based economy for the purpose of the long-term meaningful participation in international trade (and finance). JEL Classification: F31, J60, O14

The present article develops an argument in which depreciating Indian rupee is basically due to underdeveloped status of domestic production base that is reflected in continuing trade deficits. It argues that price theoretic policies not only manage trade imbalances but also completely neglect the revival of domestic production base that can induce a tendency towards exports-led correction of the trade imbalances, that is, it neglects the importance of exports to make a transition towards strong production base, manageable trade balances and strong foreign exchange status; if so, the continuing Indian deprecation negates international financial stability status. The present article provides an alternative policy focus that is on finance-led initiations of broader Youngian–Kaldorian division of labour that favourably shapes demand-based market mechanism (and growth of aggregate demand) and results in sophistication in industrial differentiation, that is, increased specialisations in intermediate goods production. It is argued that such transition confers a developed status with respect to the (BBoP basic Balance of Payments i.e., trade and foreign direct investment [FDI] inflow prospects), which in turn is crucial to achieve financial balance of payments (BoP) stability. All in all, the price theory is inapplicable when trade is based on absolute cost disadvantages and Keynesian policies provide the solutions.

The article, following Young (1928), maintains that the incentives to the growth of firms that is based on providing incentives for further scope of division of labour and narrow specializations in intermediate goods is the best way to promote exports, which would be associated with greater dynamism of the manufacturing sector. It adopts an empirical framework to highlight the conditions that indicate such incidence of dynamism, which could permit both higher wages to more skilled labour force and higher returns to the firms. It shows that there is a slowing down of such dynamism, which can explain the decreasing share of manufacturing exports to total exports in recent times, which is also an indicator of lack of greater dynamism of the manufacturing sector.