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Enhancing exports needs far more serious efforts.


Date: 13-05-2015
Subject: Enhancing exports needs far more serious efforts
India’s exports have been stagnant for the past few years—they have stayed close to $300 billion per year. During 2013-14, exports were at $314.4 billion, against a target of $325 billion. During 2014-15 also, exports are valued at $310.5 billion, against a target of $340 billion. During the past few months of 2015, there has been a decline in exports. The main reason attributed to this is sluggish external demand. The industry, therefore, has been demanding liberal fiscal incentives to boost exports.

The much-awaited Foreign Trade Policy (FTP) was announced on April 1, 2015. The reason for the delay, apparently, was the prolonged discussions between the ministry of commerce and the ministry of finance with regard to the fiscal incentives suggested by the former. Recently, an official of the Directorate General of Foreign Trade (DGFT) is reported to have said that, with India’s CAD narrowing to 1.6% of GDP in the October-December 2014 quarter, boosting exports with fiscal incentives is not a priority of the government right now.

Both the viewpoints of the industry and the government need to be modified. The private sector has long been emphasising incentives whereas the more important factors are export mindset and infrastructure.

Export mindset

Many Indian exporters used to have the mindset that the government needs to give incentives and attend to all the issues relating to exports, minimising or ignoring their own role.

One example is the exports of shrimps. In a recent study which this author supervised, it was found that because of Early Mortality Syndrome (EMS) in major exporting countries such as Thailand and Vietnam, their exports fell and Indian exporters gained.

As sea catch has come down, cultured (farmed) shrimp account for more than 70% of India’s exports of frozen shrimp. Because of huge demand, malpractices such as using inbred and spurious seeds and multiple cropping have been reported. In the pursuit of profits, some hatcheries and farmers resort to excessive use of antibiotics and some exporters take a chance of exporting without proper inspection. The expectation of the stakeholders is that the concerned government departments or organisations should ensure quality throughout the supply chain. The efforts made by the stakeholders are not spelt out.

Serious efforts are being made at the international level to solve the EMS problem. When enquired about what steps are being taken to meet the competition when the major exporting countries are back in the market, some exporters said that their profitability may go down, but they expect to make comfortable profits even after that.

Therefore, exporters and government agencies jointly need to look into such issues.

FTP 2015-2020

The new FTP proposes to adopt a ‘whole-of-government’ approach, i.e. combining initiatives such as Make-in-India, Digital India and Skill India to create an export mission. This is a good approach.

Initiatives of this type were undertaken in earlier FTPs, too. But their impact on exports has not been satisfactory, as can be seen from the fact that India’s merchandise exports were only around $300 billion a year for the past few years. Also, as pointed out earlier, exports during 2013-14 at $314.4 billion were below the target of $325 billion, and during 2014-15 they stood at $310.5 billion, below the target of $340 billion.

Earlier FTPs used to fix targets for the share of India in world merchandise exports. The current FTP has set a target for raising India’s share in world exports of merchandise and services from 2% in 2013-14 to 3.5% by 2019-20. Since we are doing better in services exports, combining the two gives a better picture, but setting targets separately is more useful.

It is commendable that the commerce secretary in his interaction with the industry on the FTP advised them to become competitive not through subsidies and doles but by improving quality, standards and pricing.

But the reason, as reported, given by the DGFT official mentioned above that incentives are not the priority since the CAD-GDP ratio is low is not valid. The deficit came down because of lower price of oil, fall in gold imports due to the 10% duty on gold imports and fall in non-oil imports due to slow economic growth. International oil prices fluctuate depending on the ever-changing geopolitical situation. Although India’s services exports have been stable, there was not a big rise, from $145.7 billion in 2012-13 to $151.5 billion in 2013-14.

Therefore, a proper way to deal with CAD is through merchandise exports.

Source : financialexpress.com

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