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Making India a global export hub
Read more on - Polity | Economy | Schemes | S&T | Environment
- Stagnation in merchandise exports: In the last decade (2011-200, India’s exports did not perform well when compared to its full potential. They barely grew at all, stagnating at just $300 billion a year figure. Services exports is a different story.
- General trends: Since 2011, India’s exports were hovering around $300 billion only. During the same period, India’s share in world merchandise exports has been just 1.5-1.7 per cent. The share of exports as percentage of GDP is also not so encouraging which reduced from 17 % in 2011 to 12.4 % in 2018. Hence the new Foreign Trade Policy (FTP) has to address several issues with respect to promotion of exports.
- Existing FTP and issues: The existing FTP incentivises exports through Merchandise Exports from India scheme (MEIS) and the Export Promotion Capital Goods scheme (EPCG). Under MEIS, exporters receive duty credit scrip for a percentage of the value of goods exported which can be used for payment of different taxes and duties. In 2019, the WTO dispute panel ruled that MEIS violates WTO rules and hence Remission of Duties or Taxes on Export Products (RoDTEP) replaced it. In RoDTEP, taxes and duties- mandi tax, VAT, coal cess, excise duty on fuel- was refunded but it largely benefited the textile sector than any other sector. EPCG under which capital goods are imported at concessional or zero import duty has to be overhauled to become WTO compatible.
- Other issues in India’s trade: In order to promote local manufacturing in potential sectors like mobile, pharma and textiles, Production Linked Incentive (PLI) scheme was announced. Under this, manufacturers will be incentivised by the government on incremental sale of goods based on certain eligibility criteria for five years. This initiative is taken at right time when MNCs were moving out of China but India was not able to grasp the opportunity due to multiple factors. This includes cost and quality of power, high logistics cost, low labour productivity, insufficient labour reforms and low R&D expenditure.
- Ameliorative steps: India should interlink its new FTP with FDI and industrial policies to make it as a global export hub which will also help India to become an integral part of global value chain (GVC). The SEZs can be set up in sectors identified under the PLI scheme for improving the manufacturing infrastructure. The new FTP should explore the under-tapped markets like Africa by reviving ties with them through trade and investment. The FTP should also find ways for increasing people-to-people cooperation and providing technical support to exporters for understanding the legal and business environment. More emphasis must be given to enhance trade relations with neighbouring countries- Bangladesh and Sri Lanka and Act East policy should be further strengthened. India should pave way for meaningful negotiation with the EU for free trade agreement (FTA).
- More: The import tariffs for several product categories have been raised since 2018 for achieving the goal of self sufficiency. Though these measures were taken to develop domestic capabilities but such protection measures should be accompanied with a sunset clause. The government should gradually phase out of import tariff especially for strategic partners. The economy of a country cannot grow without enhancing its export performance. Hence policymakers must help India to attract MNCs and at the same time they need to strengthen domestic manufacturers to make India a global export hub.
- The prosperity link: More exports will mean more local manufacturing, and hence more jobs. Without a robust exports engine, creating more formal sector jobs is not possible.
- Knowledge centre:
- China's exports engine - The top exports of China are Broadcasting Equipment ($208B), Computers ($141B), Integrated Circuits ($108B), Office Machine Parts ($82.7B), and Telephones ($54.8B), exporting mostly to United States ($429B), Hong Kong ($268B), Japan ($152B), South Korea ($108B), and Germany ($96.9B).
- India's exports engine: India's major exports included petroleum products, gems and jewelry, and drug formulations. Additionally, the value of the various types of machinery India exported was valued at over 29 billion U.S. dollars. Other major exports include spices, tea, coffee, tobacco in agriculture, along with iron and steel. India's share in global merchandise exports is 1.67 per cent, with a low share in top globally traded items. In services, it enjoys 3.54 per cent share. China was the largest trade partner (imports + exports) to India, in 2020.
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