The Chal­lenges in Re­viv­ing Ex­ports

Deep re­form the key when global growth wanes

The Economic Times - - The Edit Page -

Trade min­is­ter Nir­mala Sithara­man knows her onions when it comes to trade. But that does not mean that she can do much about the steady fall in In­dia’s ex­ports for one year and a quar­ter. Weak­ness in the global econ­omy is not some­thing an In­dian trade min­is­ter can rem­edy. Nor are the prob­lems in in­fra­struc­ture, in­verted du­ties for com­po­nents and fin­ished goods in sev­eral sec­tors and a frag­mented do­mes­tic mar­ket that cre­ates long de­lays at state bound­aries when a con­tainer wends its way from fac­tory to port amenable to so­lu­tion at her end. In­dia needs wide-rang­ing re­form across sev­eral sec­tors for ex­port per­for­mance to turn ro­bust.

The im­pact of de­clin­ing ex­ports can be ex­ag­ger­ated. Both petroleum and gems and jew­ellery, two big sec­tors of In­dian ex­ports, have a large im­port com­po­nent, which also has come down sharply. What ul­ti­mately mat­ters is the value added, which is im­pacted far less than what pro­longed ex­port de­cline sug­gests. That said, there is scope for re­me­dial ac­tion. One of the ob­vi­ous re­forms In­dia needs is an in­te­grated, har­monised goods and ser­vices tax, which would speed up freight move­ment and make it eas­ier to make sure that ex­port prices do not carry a bur­den of taxes and du­ties. A less ob­vi­ous re­form in the con­text of ex­ports is to clean up po­lit­i­cal fund­ing. The cor­rupt prac­tice of in­flat­ing costs, whether of power or steel plants or of coal im­ports, and si­phon­ing money off banks and con­sumers, weak­ens the en­tire econ­omy and pushes up costs to make ex­ports non-com­pet­i­tive. This scale of cor­rup­tion is needed for and en­abled by the prac­tice of fund­ing politics with the pro­ceeds of cor­rup­tion. Once po­lit­i­cal fund­ing be­comes trans­par­ent and ac­counted for, project costs and in­put prices would shed pad­ding.

That leaves trade diplo­macy. In­dia is on the right track when it em­braces trade fa­cil­i­ta­tion for goods and then de­mands sim­i­lar fa­cil­i­ta­tion for ser­vices. In­dia needs to take the lead to breathe life back into the World Trade Or­ga­ni­za­tion, join­ing its pluri­lat­eral agree­ments and pur­su­ing req­ui­site do­mes­tic re­form.

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