MSMEs have played a pivotal role in India?s exports growth. With the sector contributing almost 40% to the country’s exports directly or indirectly, it has become imperative for MSMEs to focus on not only increasing their export base but also improving their export competitiveness in the world market. A key factor hindering export competitiveness has been the high transaction cost involved in exports.
Transaction costs related to trade involves a host of regulatory requirements, procedures and compliance measures, besides infrastructure-related costs–including transport costs to bring a product to the border, time & money spent in ports on border procedures, international transport costs and communication costs. Along with these, documentation becomes an additional burden.
Complex administrative processes and infrastructure bottlenecks have kept export transaction costs in India at unreasonably high levels. Today, India ranks 100 th on the ‘Trading Across Borders’ indicator amongst 183 countries, according to World Bank?s Doing Business Report 2011. By the World bank report, the cost of exporting from India comes to around $945 per container, much above Malaysia’s $450 and China’s $500. Also, rail freight and port charges in India are amongst the highest.
The task force on transaction cost, set up by the ministry of commerce & industry in October ’09, has estimated the transaction cost for exporters at 7-10% of the export value. While 50% of the total transactional cost is structural, the rest is addressable cost.
Of the 44 measures suggested by the task force, 23 have been implemented (21 already done and two would be done in the near future). Some of these relate to single-window facility to business users in the e-trade project in place of multiple independent systems, standardisation of charges across ports, rationalisation of Container Corporation of India freight rates, extension of single-bond facility for customs, upgrade of facility at plant quarantine stations and its round-the-clock availability at select customs stations, cut in forex charges, reduction in screening charges for air cargo and express cargo, pre-shipment credit in foreign currency at lower rates, etc.
Although the government has agreed to implement nearly half of the task force recommendations, these reduce only 25% of the addressable transaction cost. So continued focus on the transaction cost will be warranted, if the recent stimulus packages to exporters have to bear fruit.
The writer is senior economist, Dun & Bradstreet India