Day 11 – Q 3.Examine the impediments that have constrained the growth of exports in India. Suggest policy measures to address the same.

3. Examine the impediments that have constrained the growth of exports in India. Suggest policy measures to address the same. .

भारत में निर्यात की वृद्धि को बाधित करने वाले अवरोधों की जांच करें। इनको सही करने के लिए नीतिगत उपाय सुझाएं।

Introduction

India has set an ambitious target to double exports of goods and services to $900 billion and raising the country’s share of global exports to 3.5% from about 2%, by 2020, fulfilling which requires a high growth in export sector.

Body

Impediments in growth of exports in India

External factors:

• Global growth slowdown, which as per IMF it is expected to shrink to 3.3 per cent in 2019.
• Non-tariff barriers by other nations, mainly in case of phytosanitary products e.g. By European Union in case of mangoes.
• Protectionist measures, along with withdrawal of Generalized System of Preferences (GSP) status, by US, which is our largest export destination.
• In most of our FTAs, our counter parts are getting more benefits. For example, India-ASEAN FTA has negative impact on India’s export of oil palm and textiles because of competition from Indonesia and Vietnam.
• Most of India’s preferential trade agreements (PTAs) have limited product coverage. For example, the India-Mercosur PTA doesn’t include textiles and apparel items.
• Global issues like Brexit, macroeconomic stress in Argentina, Turkey and Italy, and the US-China wrangle cause uncertainty in the markets.

Internal factors:

• India’s export is not diversified which is evident from the fact that top 20 export categories account for 78 % of the total.
• Competition from neighbouring countries facilitating cheap labour and favourable policies. E.g. Competition in Textile from Vietnam and Bangladesh.
• India is still exporting majority of raw material instead of the final products, for e.g. India is exporting cotton yarn rather than technical textiles
• Poor logistics infrastructure results in weak trade facilitation regime. Cost of India’s logistics as a percentage of GDP remains as high as 13-14 %, compared with 7-8 % in developed countries. In World Bank’s Logistics Performance Index 2018, it ranks 44, below China (26) and Vietnam (39).
• India’s ill-conceived trade pacts have resulted in inverted duty structure – High import duties on raw materials and intermediates, and lower duties on finished goods – That discourage the production and export of value-added items. For e.g. apparel can be imported into India duty free while its raw material -manmade fibers attract an import duty of 10 %.
• As per Economic Survey, there is huge state-wise regional disparity in prevalence of manufacturing industries where few states contribute to major chunks of export.
• Land and labour reforms are still pending, hindering large scale investments in export sectors.
• In case of agricultural exports, low value addition & lack of food processing keeps export low by value.
• Tightly regulated markets do not give enough space for exports to grow. Under the World Bank’s Doing Business rankings, India ranks 77, compared with China at 46 and Vietnam at 69.
• Slow progress in drafting trade agreements impacts its ability to participate in global value chains, affecting export growth.

Policy Measures

• India must move up from low-productivity sectors by improving the quality of its human capital.
• Focus on new products like food commodity so that the growth is more resilient and sustainable. Also, it will cushion our exports from the global volatility and shocks in the long run.
• Ease of doing business by reducing red tape, enhancing foreign direct investment limits, revamping labour laws and environmental clearance processes, thus making manufacturing hassle free.
• Improve logistics, by developing industrial corridors, waterways, etc. as in case of Sagarmala and Bharatmala.
• Initiatives like Sampada, which are promoting food processing industry should be given impetus.
• Quality control based on international standards so as to prevent our goods from non-tariff barriers.
• Diligent drafting of trade pacts taking into account the long term goals.

Conclusion

To realize the ambitious targets India has set for itself, it needs to provide not only an impetus to infrastructure and process involved but also invest highly in human capital to make necessary transition from agriculture to manufacturing and services.