India has to enhance productivity and competitiveness in the integrated global environment to assure sustained growth in exports of goods and services, according to a Reserve Bank of India report.
"The growth rate of India's trade is increasingly dependent on exogenous factors such as world trade growth, international price changes and developments in competitor countries," RBI said in its 'Report on Currency and Finance' released in Mumbai on Wednesday.
Cross-currency exchange rates as well as the dollar-rupee exchange rate movements also get reflected in the performance of India's trade, it said.
Given the exports structure of the country, the potential for further growth of manufactured goods, especially to the developed markets remains high, it said.
"However, given the general trend of movement of terms of trade towards higher technology intensive products, it may be imperative for India to move up the technology ladder," the report added.
There were also signs of pick-up in manufacturing exports since FY-03. Higher overall investment rate may help in augmenting these exports further, it said.
At the same time, the policy of reservation for SSIs has denied successful small-scale units to expand and achieve economies of scale and upgrade technology, it added.
The labour cost of producing a unit of manufacturing exports in India is one of the lowest among the developing countries.
"While preliminary evidence on total factor productivity growth at the macro-level remains somewhat inconclusive, at the sectoral level, there is growing evidence of improved productivity for the exporting sectors vis-à-vis the non-exporting ones", it said.
The linkages between trade and foreign investment in India indicate that foreign direct investment has been much less important in driving the country's export growth, except in information technology, the report said.
FDI in Indian manufacturing has been and still remains largely domestic market-seeking.
Despite significant liberalisation of imports during the 1990s, the overall balance of payments has been in surplus for most of the years with the country's foreign exchange reserves crossing the $100-billion mark.
Thus, in contrast to fears expressed at the time of opening up of the economy, import liberalisation policies, in conjunction with other external sector and overall structural reforms, have, in fact strengthened the country's external sector since 1990-91.
The implication is that continued reduction in import tariffs will help in inducing greater efficiency and competitiveness in the economy, while reducing avoidable transaction costs in trade, the report added.