A blueprint for boosting India’s exports

Syllabus: Economy: Liberalisation, Privatisation, Globalisation reforms

Source: BS

Context: India’s foreign trade, valued at $1.63 trillion in FY 2023-24, constituted 41% of its GDP, highlighting its importance in the economy and job creation. Facing significant internal and external challenges, the article gives suggestions for the new government to boost trade and spur economic growth.

Reasons behind India’s modest share in global merchandise trade:

• Historical Legacy: India’s historical focus on self-reliance and import substitution during the post-independence era led to a closed economy with limited exposure to international trade. Protectionist policies and trade barriers hindered the development of a robust export-oriented manufacturing sector.

• Protectionist policies and trade barriers hindered the development of a robust export-oriented manufacturing sector.

• Slow Liberalization Process: India initiated economic liberalization reforms in 1991, opening up its economy to global trade and investment. However, the process was gradual, and certain sectors remained shielded from international competition. Delayed liberalization affected the competitiveness of Indian industries

• Delayed liberalization affected the competitiveness of Indian industries

• Ease of doing business: Cumbersome bureaucratic procedures, complex regulations, and red tape have been persistent challenges for businesses in India. Such complexities increase the cost of doing business and hinder export competitiveness.

• Low manufacturing exports: India’s exports remain dominated by primary products and resource-intensive sectors like gems & jewellery. The manufacturing sector lacks scale, tech advancement, and infrastructure competitiveness to effectively integrate with global value chains and ramp up the exports of value-added products.

• The manufacturing sector lacks scale, tech advancement, and infrastructure competitiveness to effectively integrate with global value chains and ramp up the exports of value-added products.

• Infrastructure bottlenecks: Poor transport connectivity, and inadequate port and shipping infrastructure drive supply chain costs and hurdles Indian exports price competitiveness. Suboptimal logistics account for ~14% of product value for India, almost double that of developed economies.

• Suboptimal logistics account for ~14% of product value for India, almost double that of developed economies.

• Small producer firm size: The overwhelming share of micro, small and medium firms in the Indian economy, at over 90%, prevents them from tapping the resources to boost technology usage and productively integrate into cross-border supply chains.

Foreign Trade Policy, 2023: The Union Ministry of Commerce and Industry launched the Foreign Trade Policy 2023, emphasizing its dynamic nature and responsiveness to emerging needs. In the following way, the policy intends to address the above issue:

• Incentive to Remission: The policy continues to support time-tested schemes while emphasizing process re-engineering and automation for ease of doing business. Duty exemption schemes for export production will transition to a rule-based IT system, eliminating manual interfaces and reducing fee structures.

• Duty exemption schemes for export production will transition to a rule-based IT system, eliminating manual interfaces and reducing fee structures.

• Export Promotion through Collaboration: Recognition of new towns through the “Towns of Export Excellence Scheme” and exporters through the “Status Holder Scheme” encourages regional development and recognizes export performance. The policy promotes partnerships with states and districts, designating specific areas as Export Hubs and facilitating grassroots trade development.

• The policy promotes partnerships with states and districts, designating specific areas as Export Hubs and facilitating grassroots trade development.

• Ease of Doing Business and E-Initiatives: Process re-engineering and automation leverage automated IT systems for approvals, moving towards a technology-based facilitation regime. A one-time Amnesty Scheme allows exporters to close old pending authorizations, providing a fresh start for compliance.

• A one-time Amnesty Scheme allows exporters to close old pending authorizations, providing a fresh start for compliance.

• Emerging Areas: E-Commerce and SCOMET Policy: Special focus on facilitating e-commerce exports with raised caps and integration of courier and postal exports with ICEGATE. Streamlining the SCOMET policy ensures a robust export control system, aligning with international treaties.

• Streamlining the SCOMET policy ensures a robust export control system, aligning with international treaties.

• Promotion of Capital Goods: Rationalization and additions to the Export Promotion Capital Goods (EPCG) Scheme, including incentives for the dairy sector, green technology products, and the Prime Minister Mega Integrated Textile Region and Apparel Parks (PM MITRA) scheme.

• Advance Authorization Scheme: Introduction of a Special Advance Authorization Scheme for the Apparel and Clothing sector to facilitate prompt execution of export orders. Extension of benefits under the Self-Ratification Scheme for fixation of Input-Output Norms to 2-star and above status holders.

• Extension of benefits under the Self-Ratification Scheme for fixation of Input-Output Norms to 2-star and above status holders.

• Merchanting Trade: Introduction of provisions for Merchanting trade, allowing the shipment of goods between foreign countries without touching Indian ports, fostering the development of Merchanting hubs.

Way forward:

• Policy Steps for Domestic Manufacturing: Recent policy measures like corporate tax rate reduction, Production-Linked Incentive (PLI) schemes, rationalization of labour laws, and redefinition of MSMEs aim to boost domestic manufacturing. These steps encourage size and scale for the domestic industry.

• These steps encourage size and scale for the domestic industry.

• Global Economic Scenario: Global demand is rising with substantial stimulus packages, offering opportunities for India’s exports. Stimulus measures in the US and favourable growth forecasts globally create a conducive environment for export growth.

• Stimulus measures in the US and favourable growth forecasts globally create a conducive environment for export growth.

• A coordinated focus on exports is crucial for India’s economic recovery, especially considering constrained fiscal space and limited private consumption and investment.

• Integration into global value chains (GVCs) presents an opportunity that should not be missed, necessitating strong policy actions across all levels of government.

• Exports must be the driving force for growth, leveraging the global economic recovery and positioning India as a key player in international trade.

Conclusion

The Foreign Trade Policy 2023 reflects a forward-looking approach, blending continuity with dynamism to meet the evolving needs of the global trade landscape. With a focus on collaboration, ease of doing business, and emerging sectors like e-commerce, the policy aims to propel India’s exports to new heights.

Insta Links:

• Foreign Trade Policy (FTP) 2023 announced