Increasing India’s Exports – What can be done?


In the 21st century world of interconnectedness and inter-dependence, trade relations among nations constitute one of the most significant domain of foreign policy for any country. Prudent decision making with regard to trading policies is not only desirable but also quintessential for furthering national interests. Unfortunately, India’s share of world export remains a meagre 1.6% and has remained stagnant for many decades. Inability to push exports has also been a major factor in widening the current account deficit, over the years. Thus, in order to give a fillip to India’s exports, on April 1st 2015, the then Minister of Commerce and Industry of India, Shri Nirmala Sitharaman unveiled India’s Foreign Trade Policy (FTP)for 2015-2020.

Salient Features – FTP 2015-20
The FTP 2015-20 provides for a legal framework to boost India’s export of goods and services to the rest of the world. The main aim of the policy is to increase the value of India’s exports from $465 Billion in 2015 to $900 Billion by 2020. In an effort to better coordinate various schemes related to foreign trade, the new policy integrated as many as six different schemes for the promotion of goods’ export into a single “Merchandise Export from India Scheme” (MEIS). Similarly, it also combined two different schemes related to services promotion into a single integrated “Services Export from India Scheme” (SEIS).

The latest foreign trade policy is also in sync with the flagship manufacturing scheme of the Union government, the “Make-In India” scheme as well as Digital India scheme as it has introduced various measures to “ease” the doing of business in exports. For instance, as many as Eighteen ports in India have been equipped to provide 24*7 online clearance to all consignments. Such wise use of ICT will go a long way in promoting business and investment in India. Also the government has decided to done away with the requirement of producing hard-copies of exports, if they are qualified under “Zero defect – Zero effect” category. However, these measures may still not be enough to realise the full potential of India’s export-ability.

What can be done?
Firstly, India needs to focus on diversification of its markets as well as export commodity basket. At present, almost 30% of India’s exports are to US and EU, while potential markets in South East Asia and West Asia remain unexplored. With ASEAN, India had signed an FTA as early as in 2010, but this is only limited to commodities trade. This has been a major factor contributing to India’s trade deficit with ASEAN nations. This is because in manufacturing sector ASEAN member countries are way ahead of India while India’s forte that is Services are not part of the FTA. Devoid of services exports , it is natural for India to have a huge trade deficit with ASEAN.

Secondly, only a handful of commodities like refined petroleum, jewellery, pharmaceuticals and bio-chemicals and IT software services constitute the bulk of India’s exports. Therefore, it is imperative that domestic manufacturing is given a boost so that more and more Indian products become competitive in International markets. For that to happen, measures such as establishing economies of scale and correcting the inverted-duty structure need to be taken immediately.

To this end, India had earlier adopted the path of establishing Special Economic Zones (SEZs) but limited success could be achieved. Out of the 500 plus sanctioned SEZs, only about 200 have become operationalized till now. Several government policies like increasing Free-Trade agreements from 2009 on wards have contributed in disincentivising SEZs. These deficiencies of SEZs needs to be rectified. Moreover, bureaucratic and administrative inadequacies also needs to be addressed as development of entire trade-conducive ecosystem is the need of the hour.

Finally, without improvement in overall infrastructure, it will be virtually impossible to push manufacturing in India. For reduction of logistical costs it is necessary that world-class infrastructure is developed. Developing better transportation and communication networks, warehousing and storage capacities, etc, remain unfulfilled promises. In this regard, the recent decision of the government to give logistical sector the status of infrastructure sector, which will ensure cheaper credit, easier access to greater funds and easy clearances, is a welcome move.

The Central government has taken several steps to promote ease of doing business in India in the last three years. It has continued to tread on a path of fiscal discipline. However, for India to take advantage of the benefits, the pace of structural reforms needs to be intensified as the world economy is on its path to recovery. With oil prices steadily going up, it will be difficult for the government to continue walking on the path of fiscal consolidation. Export promotion in this scenario could become one of the solutions, given that the above mentioned steps are taken urgently.

-Contributed by Kunvar Suryansh

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