India's Export Scenario

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K R Sudhaman | 06 Jul, 2015
India, which had a global share of 2.4 percent in trade at the time of independence, dropped to a mere 0.7 percent in 1991 because of inward looking policy of self-reliance and exporting only the surplus. The balance of payment crisis in 1991 rightly brought about a change in India's economic philosophy. This change resulted in opening up the economy and a new foreign trade policy that resulted in India's two way trade in both merchandise and services reach nearly USD one trillion annually from a mere USD 70-80 billion in 1991. But the question is have we done enough. While India's share in global merchandise trade has gone up to 1.7 percent in 2013-14 from 0.7 percent in 1991, China's has gone up to a whopping 11.8 percent from 1.8 percent in the same period. In Services trade, India, which had a slight edge two decades ago because of IT software, had gone up from 1.2 percent of global share in 1991 to 3 percent in 2013-14. China whose share was a mere 0.5 percent in global services trade in 1991, has gone up to 4 percent in 2013. The figures speak for themselves. While we have gone a long way in trade since the opening up, India has not done enough to realise its true potential.

Twenty-five years since trade liberalization started in India, but there lot of fixing is still needed. The new foreign trade policy announced by Commerce and Industry Minister Smt Nirmala Sitharaman in April this year attempts to fix some of the problems in bid to reach USD 900 billion of merchandise and services exports annually in five years. This meant total two-way trade is expected to double from the present USD 1 trillion to USD 2 trillion annually in the next five years. This is a gigantic task considering that global economy is still struggling to gain momentum.

The global outlook has certain positives and negatives. Lower global oil prices helped oil importing countries like India as it imported nearly 80 percent of its requirement. But lower oil prices hit the oil exporting economies like West Asia and this contributed to slowing down of exports from India and west Asia is one of the major importer of Indian goods and services. So, softening of commodity prices globally had certain advantages and disadvantages to India's trade. Also there is volatility in exchange rates and this impacts trade badly. Indian exporters always say that more than appreciating or depreciating currency, volatility in exchange rates poses greater danger to trade.

Though this bleak global outlook provided lot of challenges to India's trade, it has also provided opportunity to fix the problems faced by India to make its trade more competitive. The new foreign trade policy has sought to address some of them. Trade facilitation and ease of doing business are the two major impediments to pushing India's trade. While it takes six hours for a ship to turnaround that is to off-load and up load and leave in Singapore on an average, it takes six days for a ship to turnaround in any of the major Indian ports. Also the road connectivity to ports is so bad that it delays container movements. The huge container ships and tankers cannot land in any of the major ports because of low draft as result of which there has to be trans-shipment at Colombo or Singapore increasing cost to exporters. The paperwork is much more in India than elsewhere in the world.

It is precisely for this reason the new Foreign Trade Policy considers these two challenges --trade facilitation and ease of doing business, as major focus areas. Recently government reduced the number of mandatory documents required for exports and imports to three, which is comparable with international benchmarks. A facility has been created now for uploading documents in exporter or importer profile and the exporters will not be required to submit documents repeatedly. Government has also made an attempt to simplify various "Aayat Niryat" forms, bringing in clarity in different provisions, removing ambiguities and enhancing electronic governance.

One of the problems manufacturing exporters complain is inadequate and erratic power supply. This creates problems for exporters to keep up the schedule for delivery. As a result exporters forced to go diesel generators for power backup raising the cost. One unit of thermal power costs Rs 4-5 per unit whereas diesel power costs around Rs 15 per unit and sometimes Rs 3-4 per unit more because of large scale of diesel pilferage in the country. Government's ambitious programme in the power sector will help ease this problem. Government proposes to add 2.66 lakh Mw of additional power including 100,000 mw of solar power with an investment of over USD 300 billion in the next five years. This will help India's trade particularly manufactured exports. The foreign trade policy provides a necessary framework for increasing exports of goods and services as well as job creation and increasing value addition in the country.

The new FTP lays down a road map for India's global trade engagement in the coming years and measures required for trade promotion, infrastructure development and overall enhancement of trade eco system, according to the Commerce minister. But government should be careful while entering into regional trade agreements as there are fears that they are being increasingly used by global corporates to make emerging economies to bend and rule by proxy. The tough negotiations by India in the India-EU free trade agreement went to show, India would not give in that easily to corporate lobby through their governments in those countries.

The five year trade policy also introduces two new schemes – Merchandise exports from Indian scheme for export of specified gods to specified markets and Services Exports from India scheme for increasing exports of notified services in place of plethora of schemes earlier with different condition for eligibility and usage. This is yet another step in moving towards ease of doing business. Measures have also been taken to give boost to defence and hi-tech exports. Robots are increasingly replacing some of the mundane and hazardous jobs done by workers like in the paint shop and precision work. This is an area where India could leapfrog and overtake China in this new export frontier. Government should lay special emphasis to cash-in this sector.

Inverted duty structure of raw materials and intermediary goods was one area that was bothering manufacturing sector and their exports particularly in the electronics sector. Over USD 40 billion of electronics goods are being imported, next only to oil and gold imports in the country. This is being sought to be addressed by the new electronics policy, which aims to attract up to USD 400 billion investments in the sector in the coming years. Also finance minister Sh Arun Jaitley has addressed some of the inverted duty structure issue in his last two budgets and foreign trade policy promises to do more.

Overall, the new foreign trade policy is on the right track some of major woes of exporters in pushing up India's trade. It has started with right earnest. The previous trade policy was to take India's merchandise exports to USD 500 billion annually by 2013-14 but ended up with USD 312 billion in 2013-14, a way off the mark. Global economic situation was said to be the reason for not achieving the target. One only hope the same thing is not repeated.

**K R Sudhaman is a senior business journalist. Source: PIB