Why exports hold key to accelerating India's growth
India’s export growth has stagnated since 2012 but turned negative in last few years. Though there is an early sign of recovery with 15 per cent increase in goods’ exports in 2017-18, India is still far from its potential, particularly when world market is reviving and exports of other emerging countries are going up.
Economic Survey 2017-18 rightly puts forward the point that export is one of the main drivers of growth and can upscale India’s growth rate by 0.5 per cent in FY 2018. Therefore, if Indian economy has to achieve 7.5 per cent to 8 per cent growth rate, it needs to reap the benefits from the growing world market.
Tough times
India’s exports are facing challenges such as rising rupee, delay in tax refunds, trade facilitation issues among others. Therefore it was expected that Budget 2018-19 would not only provide budgetary support but take pro-active policy initiatives for export promotions. However, it’s surprising that the Budget is silent on exports, which is crucial for jobs and growth.
Traditionally, there are always a few sops for the external sector and some trade policy announcements in the Budget but this year has been an exception. Maybe, the finance ministry has left this area to the domain of the commerce ministry to take the necessary steps with regard to boosting India’s exports when it carries out the fine-tuning of India’s foreign trade policy in a few weeks from now.
Exports not only contribute to growth but also create jobs as a large number of Micro, Small and Medium Enterprises (MSMEs) are involved in this sector. Budget-2018 has nothing special to offer for exports promotion except the increased allocation from Rs 1,100 crore to Rs 2,000 crore for the interest equalisation scheme (IES) for the current year and Rs 2,500 crore for 2018-19.
Further allocation for Remission of State Levies (ROSL) has been enhanced from Rs 1,555 crore to Rs 1,855 crore for 2018 FY and Rs 2,164 crore for FY 2019. ROSL compensates exporters for state levies, while IES provides loans at lower interest rates to exporters. The increased allocations for both programmes will be helpful for both merchandise and service exporters, particularly labour-intensive sectors.
The government recognised the potential of agricultural exports and therefore proposed to set up state-of-the-art facility in 42 mega food parks along with comprehensive logistics facilities to promote exports of commodities like tea, coffee, fruits and vegetables. This is a welcome step as export of agri and allied products has been slowing down for the past few years but improved marginally in 2016-17. However, Budget could have taken few steps in reducing cost of agro-capital and improving efficiency in the agricultural sector.
Any proactive steps and policies either incentivising specific exports sector or improving trade facilitation would have boosted the incentives package announced by commerce minister Suresh Prabhu in December 2017 to boost exports of labour intensive sectors specifically that of MSMEs. Prabhu announced an incentive package worth Rs 8,450 as part of the midterm review of FTP 2015-20 for the labour intensive sector to boost exports and employment. Some of the major announcements included raise in incentives under MEIS to 4 per cent from earlier 2 per cent for leather, textiles, agro products and carpets; e-wallet for exporters to address capital blockage; and duty-free imports for exports against self-certification.
The package
Though the package by the commerce minister would facilitate exports, particularly MSMEs in labour intensive sectors, the Budget could have accommodated allocations and also initiated policies for some of the sectors that have witnessed not only slow down but negative export growth in last few years. Some of the sectors of concerns have been leather and leather manufactures, textiles and allied products, petroleum products, electronic items, sports goods and transport equipment.
Budget could have focused on increased size and scale of labour-intensive manufacturing units, focusing on exports to make them more competitive. Though the scheme like Niryat Bandhu that intends to mentor MSME exporters on international exports to optimise exports from India, Budget 2018 could have taken a few steps to help MSME sectors to reap the benefits of growing world economy.
Indian MSMEs are far away from foreign buyers to receive a letter of credit, therefore denying them of formal financing. MSMEs are not in a position to brand and market their products due to low exposure of the market, low promotional activities and high costs. Therefore, Budget-2018 could have taken measures to help MSMEs which exports more than one-third of total exports. Further, the Export Credit Guarantee Corporation (ECGC) that provides insurance during the shipment export could have been made MSME-centric and to start-ups participating in exports with increased allocation.
Big steps
The Budget, however, has taken a few big steps to for MSMEs — like cutting corporate tax rate to 25 per cent with annual turnover up to Rs 250 crore, providing an additional Rs 3,794 crore for MSMEs for credit and comprehensive package with allocation of Rs 7,148 crore compared for MSMEs in textile sector. These would certainly help MSMEs. However, a few sectorspecific steps for promotion of exports would have been helpful as higher exports in a growing world economy could be one of the drivers to reach 7.5 per cent growth. It is also a bit disappointing to observe that the Budget is silent on trade facilitation which would be instrumental to reduce trade and transaction cost and make India’s export more competitive.
The only specific mention with regard to trade policy is the increase in customs duties of a few items to promote Make in India and its domestic manufacturing. There’s no doubt it’s a good Budget given the fiscal space available to finance minister Arun Jaitley. However, if India has to achieve more than 7 per cent growth rate, it’s time to reap benefits from the growing world markets through exports where Budget is quite silent.
(Courtesy of Mail Today)