Stop relying on subsidies: Piyush Goyal’s message to exporters

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Published: June 7, 2019 6:17:12 AM

The minister’s comments come at a time the country is preparing to weed out most export sops as countries like the US have targeted it at the World Trade Organisation.

Piyush Goyal, subsidies, World Trade Organisation, inflexible labour norms, subsidies,  MEIS, US china, exchange rate indexUnion minister for commerce and industry Piyush Goyal addressing industry, in New Delhi on Thursday

Commerce and industry minister Piyush Goyal on Thursday asked industry and exports bodies to stop relying on “crutches of subsidies and grants from the central government” and try to improve competitiveness and self-reliance, adding that the time for setting incremental export growth targets is over.

The minister’s comments come at a time the country is preparing to weed out most export sops as countries like the US have targeted it at the World Trade Organisation. Also, several export sectors with potential for global competitiveness continue to be crippled by lack of bold policy support. Exporters have long complained about elevated logistics costs and inflexible labour norms and also cried hoarse over a ‘strong rupee’, under the country’s managed floating exchange rate system. India’s logistics costs make up for as much as 15-16% of the consignment value, according to a 2018 paper by Bibek Debroy and Kishore Desai. The costs are higher than those of around 10% in developed nations. According to the RBI’s real effective exchange rate index, despite recent depreciation, rupee was still “over-valued” by close to 18% in April.

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‘Potential revenue forgone on account of the merchandise exports from India scheme alone is around Rs 30,000 crore a year, as per the foreign trade policy unveiled in December 2017. “My own experience in the last five years is that wherever we have done away with subsidies, industry and business have progressed, grown and prosper,” Goyal said. LED bulbs, for instance, are now available at affordable rates due to higher production. He, however, added: “I understand that there are issues where we are not as competitive as compared to other countries. Let us go to the root of those problems and sort out those issues.”

Exporters have long complained that elevated logistics costs, zero-duty benefits to poor countries like Bangladesh for supplies of textiles and garments to the EU and the US, and strong rupee have eroded their competitiveness. India’s logistics costs make up for as much as 15-16% of the consignment value, according to a 2018 paper by Bibek Debroy and Kishore Desai. The costs are higher than those of around 10% in developed nations. According to the RBI’s real effective exchange rate (REER) index, despite recent depreciation, rupee was still “over-valued” by close to 18% in April.

The meeting comes at a time when export growth has remained subdued at an average of just 3.2% in the past six months through April. The IMF has trimmed its 2019 trade growth forecast by a sharp 60 basis points to 3.4%, against the actual rise of 3.8% in 2018, citing risks from a trade war between the US and China (which could hurt India as well). The US also scrapped duty benefits on annual Indian exports of around $5.6 billion under its Generalised System of Preferences programme from Wednesday.

While the government is in the process of restructuring certain export promotion schemes such as the merchandise exports from India scheme (MEIS), it also aims to boost credit flow and insurance coverage for exports. The MEIS is the most important export promotion scheme under which the government provides exporters duty credit scrip of 2-5% of their export turnover.

Export credit plunged 24.4% year-on-year as of April 26, even on a favourable base (Such credit had collapsed 56.2% a year earlier). In contrast, overall non-food credit grew 11.9% y-o-y as of April 26, against 10.7% in the previous year.

At a time when a trade war between the US and China has threatened to jeopardise global growth, Goyal asked stakeholders to “engage with the world from a position of strength”. Every country, he said, is willing to invest in India so that they may benefit from the huge market opportunity here.

Goyal was addressing a joint meeting of the Board of Trade and the Council of Trade Development and Promotion, organised by the commerce and industry ministry.

Secretaries of commerce, revenue, shipping, road transport and highways and civil aviation attended Thursday’s meeting, along with representatives of export promotion councils and industry, and exporters.

The Board of Trade advises the ministry on policy measures to boost trade, while the council ensures the continuous dialogue with states to improve trade-enabling environment there.

On the US decision to withdraw export incentives of around $190 million on Indian exports under the generalised system of preferences (GSP) programme, Goyal said: “I think India is now evolving and moving out of the crutches that we thought we needed to export. India is no more an under developed or least developed country that we will look at that kind of support. We believe we can be export-competitive at our own strength.”

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