Business Today – August 25, 2019

What’s Containing Exports

Within a week of taking charge as commerce minister, Goyal or-

ganised a joint meeting of the Board of Trade (a top advisory body

on external commerce comprising trade experts and export pro-

motion councils) and the Council for Trade Development and Pro-

motion (a group of state trade ministers and officials) in Delhi to

figure out the reason behind the slowdown in Indian exports. The

discussions held largely focussed on the need to increase logistics

efficiency, improve ease of doing business and monitor the prog-

ress of infrastructure projects, which revealed the long-drawn-out

nature of the problems and not-so-forthcoming solutions. Earlier,

Surjit Bhalla, a former member of the Prime Minister’s Economic

Advisory Council, headed a high-level advisory group (HLAG) on

trade policy at the behest of then commerce minister Prabhu. Even

then, the experts concerned zeroed in on the same issues.

The world economy is in a flux and India must respond stra-

tegically to current and chronic challenges, the HLAG noted in its

presentation to Prabhu. While trade disruptions with the US, a

huge trade deficit with China, India’s weak links with global value

chains and the increasing role of FTAs in directing trade flows were

marked as current challenges, the chronic ones were all about the

country’s reluctance to negotiate trade deals

(a likely reason for Goyal to opt out of RCEP

meet), high cost of capital and corporate tax,

and archaic labour laws.

Biswajit Dhar, a professor at the Centre

for Economic Studies and Planning un-

der Jawaharlal Nehru University, concurs.

“We cannot stand up to the international

competition. What is most worrying is that

we are integrating with the global economy

without knowing how to cope with the

challenges posed by our inefficiencies. All

our past sins are coming home to roost.”

Dhar cites agriculture as an example. “We are in a serious bind;

we cannot decrease the tariffs because inefficiencies are spilling

over, and now we are also facing a deflationary situation. For In-

dia to be part of the global economy, and not to sort of withdraw,

is going to be the major challenge.”

Infrastructure bottlenecks also affect export competitiveness

and trade volume. Too few ports and their poor turnaround time,

coupled with bad roads, slow freight trains and yet-to-be-function-

al freight corridors have put the country way behind rival nations.

Inadequate power supply, stiff electricity tariffs and delayed GST

refunds are also piling more misery on embattled export entities.

According to Kathuria of ICRIER, India’s export prospects can

be hurt by its import policies. “This is especially interesting at this

point. Earlier, China was the global manufacturing hub. But now

that it is locked in a trade tussle with the US and its manufactur-

ing costs are rising, dozens of companies are looking to exit China

and set up their manufacturing units elsewhere. Besides, many

of the foreign investors are trying to diversify their supply chains.

However, India is in no position to take this advantage as its rising

import tariffs keep it out of the global value chain (GVC). “Every

year, we are increasing customs duty on primary goods. The hy-

pothesis is that if we increase customs duty, we are promoting local

manufacturing and generating more domestic jobs. But an import

POLICY>EXPORTS

52 IBUSINESS TODAYIAugust 25I 2019

RAJAT KATHURIA

Director and CEO, ICRIER

PROBLEM

We are increasing customs duties on primary

goods. An import tariff is an export tax as,

since 1995, the import component in our ex-

ports has been rising. When you have cus-

toms duty on imports (of raw material), it in-

creases the cost of exports.

SOLUTION

Maintain a balance in import duty structures,

especially for electronic products. Focus on

ease of doing business.

KRISHNAMURTHY SUBRAMANIAN

Chief Economic Advisor

PROBLEM

The global market is extremely competitive,

with firms that are able to produce at the low-

est costs having the ability to gain market

share in exports. So, average productivity of

firms becomes crucial to export competitive-

ness (which India needs to improve). Capital

investment enhances total factor productiv-

ity, which enhances export performance.

Therefore, investment becomes crucial to en-

hancing export performance.

SOLUTION

India’s share in global exports is so low that it

should focus on market share. The current dis-

ruptions provide an opportunity for India to in-

sert itself into global supply chains. The High

Level Advisory Group, chaired by Surjit Bhalla,

submitted its report in June 2019 on how India

can enhance its exports. Its recommendations

(nine general and seven industry specific) need

to be studied and implemented where possible.

(Source: Economic Survey 2018-19)

PROBLEMS AND

SOLUTIONS

12 %

Share of
exports in GDP
in FY2017/18
compared to
17% in 2010/11