India’s foreign trade: Need for speed & sustainability

• India’s export growth slipped for the second time in three months, while the imports continued to decline for the third straight month.
• The export stimulus package announced by the government will surely a great breather in near term as it will immediately address working capital demand and inefficiencies in the system, making the refund of input credit seamless.
• The new scheme, Remission of Duties or Taxes on Export Product (RoDTEP), which replaces MEIS, will need immediate clarity on its details
• Industry is looking for more long terms structural interventions like time bound adoption of necessary technical standards, modern clusters, market-led trade strategy and branding support.

Exports are recognised as a key driver  in India’s ambitions to be a US$ 5 trillion economy. Shri Piyush Goyal, Minister for Commerce & Industry, asserted last week, “India must bring back 19-20% export growth to become a $5 trillion economy”.

However, India’s exports in the current fiscal seem to be largely mirroring the gloomy sentiment prevalent across the global economy. In August, India’s merchandise exports fell by 6% YoY to reach US$ 26.13 billion.  Imports declined by 13.45% YoY to reach US$ 39.6 billion, implying a reduced trade deficit of US$ 13.45 billion. The drop in the trade deficit would otherwise be cause for celebration, but for the implied sluggishness in domestic demand. More than 20 sectors out of 30 have registered negative growth, including oil and gold imports.

Smt Nirmala Sitharaman, Minister of Finance has introduced a stimulus package to boost India’s exports. This includes, most importantly, the introduction of a new scheme for remission of duties and taxes on export product (RoDTEP) to replace the current Merchandise Exports from India Scheme (MEIS) from January 1, 2020 and revision of priority sector lending norms, which will release an extra Rs 36,000 crore to Rs 68,000 crore as export credit.

Mr Mohit Singla, Chairman, Trade Promotion Council of India, commented on the government measures, “Exports stimulus package will surely be a great breather in near term as it will immediately address the working capital demand as well as inefficiencies and delay in the system; making the refund of input credit seamless. This is a clear indication of government intend to help the industry. Also, priority sector lending for the export sector is a great breather. The thrust on digitization will cut the transportation and shipment time and goods will be cleared faster.” However, he added that the new scheme RoDTEP “will need immediate clarity on its details, on how it will incentivise exporters”.

Further, he added, “The industry is looking for more long terms structural interventions like time bound adoption of necessary mandatory technical standards to overcome technical barriers and affordable testing and certification infrastructure. Of late, the trade war has aggravated and frictions to bilateral trade have grown at global scale. These long term measures will make Indian export competitive globally.”

Following are the measures that TPCI recommends for long term sustainability;

Identifying the most promising sectors – Promote and produce competitive products in which the country has a distinctive advantage. India should try and produce what it is good at and at the best possible prices so that people are inclined to buy and the product is competitive globally. Also, the focus should now be on exporting more finished products rather than raw materials, to counter many tariff and non- tariff barriers. 

Creating modern clusters – It is time when India needs to phase out subsidies and boost competitiveness basis the strength of the product. This can only be achieved by mass production and achieving economies of scale. The problem is that we do not have the productive capacity. The idea of cluster is to generate a sense of cooperative manufacturing and start building capacities together and leveraging capacities of each other. The shared utilities will have much lesser cost and help produce goods at minimum input cost. The need of the hour is creating clusters based on specific products like furniture, food processing and electrical with sunset window and other tax benefits to create a mega ecosystem, where investments can generate guaranteed returns.

Need for national shipping line- Indian exporters are facing severe problem due to continuous rise in shipping freight to US, Canada and even to European markets by the shipping lines. These increases have been brought about by imposing several surcharges like peak season surcharge and general rate increase which varies according to different shipping lines and container sizes. Apart from these, the shipping lines have also imposed several small surcharges and incidental charges such as the issuance of Bill of Lading (BL), Amendment to BL and various other smaller charges, which are adding up to a sizeable amount. In the absence of a National Shipping Line, our exporters are at the mercy of these foreign shipping lines.

Encourage exports of GIs – India has over 300 GIs registered, but few have been used for commercial value addition. Two of India’s well-known GIs are Darjeeling tea and Basmati rice. Branding agri-products in particular through steps such as geographical indication (GI), especially for organically-produced commodities, would realize higher returns in global markets.

New SEZ policy needed – SEZs have to create compelling reasons so that people invest in SEZ region for the initial catalyzing effect. An idea is to incentivize the exporter on degree of value addition. An exporter should be allowed to import raw material at zero duty and avail duty rebate proportionate to value addition.

A market-led trade strategy- An intensive and focussed market promotion effort targeting key identified countries has been lacking. The government should promote a sales office, which is an established global practice. Trade bodies can run these offices at their own cost to promote trade. The government may incentivize them throughout on any increase in exports to a dedicated region, purely based on performance.

Branding – Branding is very important to obtain recognition and acceptance in the global markets. Helping the new and existing exporters in promoting their brands and products in foreign markets will be helpful in creating demand for the exports. Branding adds value by differentiating the product and also because of the consumer perception that such products are of superior quality than unbranded ones. India should strongly back its focus export sectors with well executed sectoral brand campaigns.