Several panels later, India’s export sector a laggard, cries for bold policy push

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Updated: October 30, 2019 5:11:36 PM

Lack of desired reforms has made exporters rely on the crutches of government subsidies that are being challenged at the WTO, such as those under the Merchandise Export From India Scheme (MEIS) that the government has now decided to replace with another WTO-compatible scheme.

While merchandise exports have contracted in three of the first six months of this fiscal, services exports are still to achieve the growth witnessed in earlier years. (Representational image)While merchandise exports have contracted in three of the first six months of this fiscal, services exports are still to achieve the growth witnessed in earlier years. (Representational image)

Even as the government is set to formally release the report of a high-level advisory group under noted economist Surjit Bhalla on ways to boost exports on Wednesday, recommendations of similar panels in the past have hardly been implemented. Inadequate government action has often rendered the practice of setting up panels largely irrelevant, while the country’s export growth continues to remain below par and miss targets frequently.

Various committees, working groups, inter-ministerial panels have, in the past, suggested steps to address structural hurdles,including elevated logistics costs, inflexible labour laws and inverted/distorted duty structure (especially in textiles), which continue to cripple India’s ex-port competitiveness. Archaic labour laws have long militated against firms acquiring size and scale in critical jobs-intensive sectors, while logistics costs make up for as much as 15-16% of exporters’ consignment value. Exporters have also cried hoarse over a “strong rupee”.

But follow-up action on most of the suggestions, especially the bold ones, has been hanging fire for long. Lack of desired reforms has made exporters rely on the crutches of government subsidies that are being challenged at the WTO, such as those under the Merchandise Export From India Scheme (MEIS) that the government has now decided to replace with another WTO-compatible scheme.

No wonder, export targets have been frequently missed in recent years. The aim under the foreign trade policy (for five years through FY20) was to achieve annual exports, both goods and services, of $900 billion, which remains a dream (In FY19, the exports reached only $540 billion). While merchandise exports have contracted in three of the first six months of this fiscal, services exports are still to achieve the growth witnessed in earlier years.

The Bhalla panel was set up in September last year in the backdrop of an escalating global trade war and India’s lacklustre export performance. The 12-member panel has suggested, among others, the launch of “elephant bonds” (25-year sovereign bonds) in which people declaring undisclosed income will be bound to invest 50%. The funds will be utilised for infrastructure financing. It has also called for lowering effective corporate tax rate (before the government announced the sharp cut in corporate tax rates recently), bringing down the cost of capital and simplifying regulatory and tax framework for foreign investment. It also recommended a host of other steps that include a road map for doubling India’s exports of goods and services to over $1,000 billion by 2025.

The Economic Survey 2018-19 has also favoured the implementation of the Bhalla panel recommendations (wherever possible) to boost exports. However, given the successive governments’ reluctance to herald radical reforms to raise the country’s export competitiveness, the fate of the report will be known only later.

Fixed-term employment options introduced for all sectors starting with garment manufacturing in 2016 haven’t had the desired impact so far, either. The textile and apparel sector was subjected to various policy rigidities and taxation issues that thwarted the efforts of integrated business units with economies of scale and technological prowess to flourish. Although most of these problems have been addressed over the past decade and state support has been given to technological upgrade in this labour-intensive sector, this has proved to be too late. By the time the sector was able to reap the benefits of the changes, countries like Vietnam and Bangladesh had moved ahead and occupied the space ceded by China in the world markets for mass-consumption textile and clothing items, virtually keeping India at bay.

Admitting that many suggestions of various panels on exports and related areas have not been adopted by the government, a senior official insisted the “perceived inaction doesn’t mean the reports were not taken seriously”. “Recommendations are always studied in detail before the government decides to either implement them or reject them. Not all suggestions are prudent and can be implemented because the government has to always look at the larger macro picture and not just a micro one that is limited to a particular sector. Even then, these reports offer necessary intellectual inputs for policy making. Also, some suggestions are adopted after a time lag, if not immediately,” he said.

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