Putting India’s exports on a sustained growth path

By: |
September 22, 2021 5:45 AM

The government needs to invest in transport and logistics rather than rely on ad hoc export promotion measures, which have failed to boost exports

The focus of the new Foreign Trade Policy should, therefore, be obvious—the government needs to invest and promote investments in transport and logistics, rather than rely on ad hoc export promotion measures, which have failed to promote India’s exports.The focus of the new Foreign Trade Policy should, therefore, be obvious—the government needs to invest and promote investments in transport and logistics, rather than rely on ad hoc export promotion measures, which have failed to promote India’s exports.

Over the past few months, there has been a high degree of optimism regarding India’s export prospects, with commerce minister Piyush Goyal setting a target of $400 billion for FY22. If realised, this target would exceed the highest level of exports that the country has ever achieved, of $330 billion in 2018-19, by over 21%. There are good reasons for optimism; exports have exceeded $163 billion for the first five months (April-August) of the current fiscal, which is nearly 23% higher than the level achieved in the corresponding period in 2019-20, the ‘normal’ year before the Covid-19 pandemic. But, more importantly, April-August 2020-21 witnessed a level of exports that has never been seen in the past.

India’s exports surged on the back of consistent recovery of the global economy, especially in the country’s main export destinations. The US and China, the two largest export destinations, expanded by 6.6% and 8%, respectively, in the second quarter of 2021. But in the current quarter headwinds could develop, as China is expected to grow at 2.5%. India’s exporters must override these uncertainties to maintain the exceptional growth in exports recorded in the first half of 2021.

The government has lent a helping hand to exporters by notifying the new export promotion scheme, the Remission of Duties and Taxes on Exported Products (RoDTEP). Announced over a year ago, the RoDTEP replaced the Merchandise Exports from India Scheme (MEIS)—discontinued in December 2020. The objective of the RoDTEP is to refund the yet non-refunded taxes and levies imposed on an exported product at the central, state and local levels, including prior stage cumulative indirect taxes on goods and services used in its production, as well as all taxes and levies imposed on its distribution.

As compared to the RoDTEP, the MEIS was a very ambitious scheme. Introduced in the Foreign Trade Policy 2015-2020, the MEIS was expected to “offset infrastructural inefficiencies and associated costs involved in export of goods … especially those having high export intensity, employment potential and thereby enhancing India’s export competitiveness.” Under the MEIS, incentives were issued as duty scrips to be used for payment of several duties by exporters. However, two sets of constraints led to the decision to discontinue the MEIS.

First, acting on a complaint made by the US against India’s export promotion schemes, including the MEIS, a dispute settlement panel of the WTO had given an adverse ruling in 2019. The panel ruled that these schemes violated WTO rules on subsidies since they were designed solely for the purposes of improving export performance.

The second problem regarding the MEIS was highlighted by the government and substantiated in CAG reports. The department of revenue, as also the NITI Aayog, opined the scheme was inefficient as it did not improve India’s export prospects. In the five years the MEIS was in place, the revenue foregone on account of it was almost `1,32,000 crore, but exports remained sluggish, except in 2018-19.
In its Performance Audit of the MEIS conducted for the year ended March 2019, the CAG raised several systemic issues related to its implementation.

Among the more important issues raised were the discrepancies between MEIS scrip value and the actual entitlement as per shipping bills. The report pointed that delays in updating the system resulted in incorrect adoption of foreign exchange rates. There were cases of excess grant of MEIS duty credit scrips on account of misclassification of goods leading to claim of higher rates and inclusion of ineligible products. The CAG had, therefore, provided evidence supporting the government’s view that the MEIS was inefficient in delivering results in the form of higher exports.

There is, however, a larger issue, which goes beyond the implementation of the MEIS, and this pertains to the efficacy of the export promotion schemes in general. Government data shows that the revenue foregone on account of export promotion concessions since 2014-15 was over `4,45,000 crore. During this period, the average level of exports was below the psychological figure of `300 billion. The main reasons for this indifferent performance of exports, which was admitted by the government while announcing the MEIS, have been “infrastructural inefficiencies and associated costs.” If India’s exports are to be put on a sustained growth path, it is imperative that this area receives due attention of the government.

Efficiencies of trade-related infrastructure in India continue to be relatively low, notwithstanding the improvements over the past decade. Consider, for example, the turnaround time of ships in ports, which is an indicator of how efficiently ports can handle cargoes. In 2020, the average turnaround time for Indian ports was 2.62 days, while the global average in 2019 was 0.97 days. Further, the maximum size of ships that could enter Indian ports in 2019 was nearly 1,54,000 gross tonnes, as against the global average of nearly 2,19,000 gross tonnes, which points to the scale economies that are waiting to be harnessed. Thus, bridging the gap in port efficiencies can make considerable dent in the cost of doing business, thereby lending competitive edge to India’s exports.

The focus of the new Foreign Trade Policy should, therefore, be obvious—the government needs to invest and promote investments in transport and logistics, rather than rely on ad hoc export promotion measures, which have failed to promote India’s exports.

Professor, Centre for Economic Studies and Planning, School of Social Sciences, JNU

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