Anil K Kanungo
The remedial action is to bring in reforms such as an integrated goods and services tax that will speed up freight movement.
What could explain a steady and dramatic fall in India’s exports? Is it weak global demand, low oil prices, fall in commodity prices, weak infrastructure, non-competitiveness of Indian products or competition from China? It would be inappropriate to point out a single factor as mentioned above, for the decline is a strong combination of all these factors.
Exports were a drag on India’s growth story in 2015-16. Traders were hit hard, the government remained worried and policymakers looked for alternative policies and strategies to revitalise the export prospects. The only silver lining, however, was the depreciation of rupee which led the economy to witness an increase in exports in specific sectors and earn a few dollars more.
Low commodity prices and a global slowdown, driven by a faltering Chinese economy, has registered lower level of exports in the last couple of years. This, in turn, could derail the recovery process of many economies including India’s. With exports getting affected and domestic demand subdued, capacity utilisation levels for key sectors will take time to improve, which will delay the recovery process of major industrial houses and companies.
In March 2016, exports fell consistently almost for a year, declining 24.43 per cent year-on-year to $20.01 billion. But a 30.26 per cent decline in imports to $29.80 billion ensured that the trade deficit remained on track at $9.78 billion in November 2015 against $16.23 billion a year ago. During 2015, exports reached $243.68 billion against $323.2 billion for the whole of 2014. All this suggests that the government needs to take some prudent policy decisions to revive the prospects of exports.
Currently, the government faces many challenges. First, the weak global demand is something that the Centre can’t do much about. So, to facilitate exports, it needs to make its infrastructure better by offering road transport, cargo clearance and better maritime facilities to exporters at the earliest.
Specialised focus should be given to addressing the inverted duty structure by providing the Special Additional Duty (SAD) exemption to manufacturers. This will encourage domestic manufactures to produce products with the import substitution facility in a better way than what they used to with the very slim margins they got.
Second, India suffers from a fragmented domestic market that creates unnecessary delay at state borders for a container to reach the port from the factory.The country needs wide-ranging reforms here in terms of state clearance and faster movement of containers on the road.
Third, a manufacturing strategy predominantly based on exports will take a long time to achieve because manufacturing in India still has competitive disadvantages like high cost of power, high cost of capital, infrastructure bottlenecks and lack of core technology. The government needs to ensure that our domestic market is attractive in terms of scale, is profitable for manufacturers and is a place which is easy to do business with.
Fourth, there is an imperative need to speed up clearances and processes and allow easier availability of credit for exporters. This needs to be done on a priority basis because over two-thirds of Indian exporters are small producers and manufactures, especially in the areas of agriculture, textiles, gems and jewellery, who are unable to benefit from even the small opportunity that they encounter. Creation of an export development fund would be an added incentive for these exporters.
Fifth, India follows a Look East policy which accounts for 50 per cent of its exports which are not systematically promoted or captured. This volume is higher than the combined share of Europe and the US, currently registered at 31 per cent. During the third and fourth quarters of 2015, the country’s exports to Asia declined nearly 19 per cent and that to the Europe by 11.2 per cent. The threat of competition from cheaper Chinese imports actually hit India’s trade in 2015.
