MARCH 10, 2017

By TIOL Edit Team

FINANCE Ministry's latest working paper (WP) on reviving sagging exports comes up with several proposals that merit attention of the Modi Government.

The Government has not given the requisite momentum to exports in recent years perhaps because of the global slowdown in foreign trade during the last six years. According to United Nations Conference on Trade and Development (UNCTAD), the global trade, grew at a rate of less than 2 % per year during the years 2011 to 2014. The trade declined by 10 % in 2015. This is the second time in 30 years that the world has witnessed a dip in trade. The last similar development happened in 2009 when trade collapsed by more than 15 %.

India's exports during April-January 2016-17 aggregated to USD 220922.78 million, registering a growth of 1.09 per cent over the corresponding period of previous year.

Titled 'Reviving and Accelerating India's Exports: Policy Issues and Suggestions', WP should not be allowed to be forgotten as an intellectual output as happens with many such researched efforts. Simultaneously, the Government should consider suggestions from different stakeholders including International Monetary Fund (IMF) to perking up foreign trade.

The Government would restructure all export promotion schemes taking into account the impact of upcoming GST - an issue well-articulated by WP.

Reviewing the uncertain global trade post Brexit & emerging protectionist stance of the US, WP has suggested that India should bank on WTO for fair global trade.

As put by WP, "In many countries opinion has slowly started to veer back towards WTO negotiations. In the Indian case, this could be a blessing in disguise for India as we are not part of any major FTA/Mega FTA and their growth could have harmed our interest; our FTAs have benefitted our trading partners more than us, though some FTAs are just for strategic reasons; and the GSP benefits have been withdrawn for India but not for some of its competitors in important sectors. In this situation, successful WTO negotiations seem to be the first best option for India."

It has also listed certain issues that have cropped during the implementation of free trade agreements (FTAs) and other similar bilateral or regional arrangements. These problems including inverted duty structure ought to be resolved swiftly and effectively to avoid setback to 'Make in India' campaign.

WP's suggestion to create an Ombudsman for resolving export-related problems and disputes at Directorate General of Foreign Trade, Central Board of Excise and Customs and at other authorities deserves implementation.

Yet another idea that merits discussion is introducing rupee trade with certain African countries to promote project exports.

The Government needs to carefully study WP's high-octane pitch for reducing import tariff across many sectors as exporters and Swadeshi lobby might resist this idea.

WP says: "There is scope for India to reduce its applied tariffs substantially and simultaneously withdraw most of the export promotion schemes. This will not cause any revenue loss. In fact revenue can be higher if applied tariff rates are kept slightly above the current realized tariff rates along with plugging leakages in the form of export incentives. Exporters will also not be affected as the import duties are lower. Instead they can benefit due to lower transaction costs."

As for export-facilitating initiatives, it is high time Government implements 2017-18 budget proposal to launch a "new and restructured Central scheme, namely, Trade Infrastructure for Export Scheme (TIES)" to make our export infrastructure globally competitive.

Similarly, the Government ought to pay heed to observations and suggestions contained in IMF's two country reports on India released last month.

The country report captioned 'India-Selected Issues' has identified two primary causes for slow-down of exports: 1) weak trading partners' demand and 2) real appreciation of Rupee. It says that India's high tariffs and trade costs have also weighed on its export performance and new investment is needed to better integrate Indian exports into global value chains.

It adds: "India's Foreign Trade Policy (FTP) 2015-2020 aims at increasing both manufacturing and services exports to USD 900 billion, or a doubling of the current level, by 2020. Nonetheless, the tepid and volatile global outlook suggests weak global trade which is likely to persist. Given the broad-based slowdown in external demand, the need for continued reform efforts to improve India's competitiveness, further trade and investment liberalization, and improving the quality and complexity of export products, has become even more pressing."