Ex­port Fu­ture

The In­dian trade regime presents com­plex­i­ties for its neigh­bours.

Southasia - - CONTENTS - By Jamil Nasir

In­dia has re­cently un­veiled a new For­eign Trade pol­icy with the avowed aim of boost­ing ex­ports and mak­ing In­dia a sig­nif­i­cant part­ner in global trade by 2020. Ac­cord­ing to re­ports, ini­tia­tives like ‘Make in In­dia’, ‘Dig­i­tal In­dia’ and ‘Skills In­dia’ will be in­te­grated into the new trade pol­icy to achieve re­sults. Some other salient points of In­dia’s New Trade Pol­icy in­clude: (1) Re­place­ment of all mul­ti­ple schemes ear­lier in place with two new schemes i.e. mer­chan­dize ex­ports from In­dia (MEIS) and ‘Ser­vices ex­ports from In­dia (SEIS); (2) Industrial prod­ucts to be sup­ported in ma­jor mar­kets at rates rang­ing be­tween 2-3%; (3) Sup­port to agri­cul­ture and in­dus­try prod­ucts; (4) Brand­ing cam­paigns in sec­tors where In­dia en­joys com­par­a­tive ad­van­tage; (5) Change of ex­port per­for­mance cri­te­rion from Ru­pee to US dollar earn­ings.

Ac­cord­ing to the For­eign Trade Pol­icy State­ment “The FTP for 20152020 seeks to pro­vide a sta­ble and sus­tain­able pol­icy en­vi­ron­ment for for­eign trade in mer­chan­dise and ser­vices; link rules, pro­ce­dures and in­cen­tives for ex­ports and im­ports with other ini­tia­tives such as ‘ Make in In­dia’, ‘Dig­i­tal In­dia’ and ‘ skills In­dia’ to cre­ate an ‘Ex­port Pro­mo­tion Mission’; pro­mote the di­ver­si­fi­ca­tion of In­dia’s ex­port bas­ket by help­ing var­i­ous sec­tors of the In­dian econ­omy to gain global com­pet­i­tive­ness; cre­ate an ar­chi­tec­ture for In­dia’s global trade en­gage­ment with a view to ex­pand­ing its mar­kets and bet­ter in­te­grat­ing with ma­jor re­gions, thereby in­creas­ing the de­mand for In­dia’s prod­ucts and con­tribut­ing to the ‘Make in In­dia’ ini­tia­tive; and to pro­vide a mech­a­nism for regular ap­praisal in or­der to ra­tio­nal­ize im­ports and re­duce the trade im­bal­ance.”

With the new pol­icy, the In­dian

gov­ern­ment aims at al­most dou­bling ex­ports from $465.9 bil­lion in 201314 to $900 bil­lion by 2019-20. If this in­crease hap­pens, the share of In­dia in the global ex­ports will rise from 2% to 3.5%. In­dia’s pre­vi­ous FTP has worked es­pe­cially with re­gard to in­crease in agri­cul­tural ex­ports. In­dia is now the world’s sixth largest net ex­porter of agri­cul­tural ex­ports. Will the new for­eign trade pol­icy help achieve tar­gets? This de­pends on sev­eral caveats. In­dia started open­ing up its econ­omy in the 1990s. Till 1990, In­dia was con­sid­ered a closed econ­omy due to her highly pro­tec­tion­ist mea­sures. De­spite its open­ing up, tar­iff still con­tin­ued to be high com­pared to other coun­tries of the re­gion. But the real prob­lem was in the non-tar­iff bar­ri­ers which made trad­ing across bor­ders dif­fi­cult and un­less such bar­ri­ers were re­moved, even ex­port pro­mo­tion would face hur­dles.

Ac­cord­ing to the WTO Trade Pol­icy Re­view of In­dia 2011, In­dia gen­er­ally fol­lows non-tar­iff bar­ri­ers on im­ports from other coun­tries. San­i­tary and phy­tosan­i­tary mea­sures are ap­plied through var­i­ous laws. Im­port re­stric­tions are also im­posed on the grounds of health, safety, and se­cu­rity rea­sons. Li­cens­ing, per­mit and tar­iff regimes are com­plex and vary ac­cord­ing to prod­uct and user. More­over, In­dia ac­tively uses an­tidump­ing mea­sures and quan­ti­ta­tive re­stric­tions. Some goods can only be ex­ported through spec­i­fied ports. So the first caveat is that In­dia needs to in­tro­duce mea­sures to re­duce tar­iff and non-tar­iff mea­sures.

In or­der to en­hance ex­ports, a coun­try needs to sim­plify both its im­port and ex­port regimes. Mer­can­til­ism, ‘beg­gar thy neigh­bor’, or ‘im­port sub­sti­tu­tion’ poli­cies are time-tested and have not worked. Ex­ports are dif­fi­cult to pro­mote with­out mak­ing both im­port and ex­port pro­cesses sim­pler and eas­ier.

In­dia’s econ­omy is pri­mar­ily ser­vices-driven as the share of man­u­fac­tur­ing has re­mained stag­nant at about 16% of the GDP for sev­eral years. Com­pared to In­dia, other coun­tries like China and South Korea have enor­mously ben­e­fit­ted from strong man­u­fac­tur­ing sec­tors. One of the chal­lenges con­fronting In­dia in achiev­ing its ex­port tar­gets de­pends how fast it boosts its man­u­fac­tur­ing sec­tor. No­body can deny the fact that a strong man­u­fac­tur­ing sec­tor is con­sid­ered a guar­an­tee for greater em­ploy­ment gen­er­a­tion, higher and sta­ble for­eign di­rect in­vest­ment and in­fras­truc­tural devel­op­ment. Though In­dia’s new For­eign Trade Pol­icy hinges on the pro­mo­tion of both man­u­fac­tur­ing and ser­vices sec­tors, but boost­ing the man­u­fac­tur­ing sec­tor will not lead to flow of for­eign in­vest­ment and the ques­tion re­mains whether such for­eign in­vest­ment will be forth­com­ing in view of the global eco­nomic down­turn.

The third fac­tor on which the achieve­ment of ex­port tar­gets hinges is In­dia’s ca­pac­ity to cap­i­tal­ize on ge­o­graph­i­cal prox­im­i­ties. Tra­di­tion­ally, In­dia’s re­la­tions with the neigh­bor­ing coun­tries have not been very cor­dial. Its poli­cies can be said to be more mer­can­tilist when it comes to th­ese coun­tries, es­pe­cially Pak­istan. It has been re­ported very fre­quently that ex­ces­sive checks are car­ried out on con­sign­ments from Pak­istan. As a re­sult, goods are held up for long pe­ri­ods at Cus­toms be­fore they are cleared, es­pe­cially from the Mumbai Port.

There are about 24 stan­dard­set­ting agen­cies both at the cen­tre and in the states in In­dia com­pared to Pak­istan’s sin­gle stan­dards author­ity i.e. the PSQCA. Due to such mul­ti­plic­ity of stan­dards, trad­ing across bor­ders be­comes an acute prob­lem. Sim­i­larly, there are a num­ber of Pak­istan-spe­cific non-tar­iff bar­ri­ers like pre-ship­ment cer­tifi­cate from an ac­cred­ited lab­o­ra­tory in case of tex­tiles, drawing of sam­ples and time con­sumed in their testing in case of leather prod­ucts, SPS re­quire­ments for agri­cul­tural items and, above all, hur­dles in is­suance of visas for Pak­istani busi­ness­men. The point is that it would be dif­fi­cult for In­dia to achieve the am­bi­tious tar­gets of ex­ports un­less it does not take a holis­tic view of for­eign trade and im­proves busi­ness pro­ce­dures.

The In­dian ‘Task Force on Trans­ac­tion Cost in Ex­ports’ in its re­port rightly points out that: “An im­por­tant di­men­sion of trans­ac­tion costs in a large coun­try like In­dia is that there is sig­nif­i­cant vari­a­tion in trade fa­cil­i­ta­tion ef­fi­ciency in dif­fer­ent parts of the coun­try. Part of the dif­fer­ence is ex­plained by dif­fer­ences in ac­cess to trade re­lated in­fra­struc­ture and dis­tance from port fa­cil­i­ties. But dif­fer­ences also arise due to vari­a­tion in qual­ity of reg­u­la­tory im­ple­men­ta­tion and pro­ce­dures. Such re­gional dif­fer­ences can lead to sus­tained eco­nom­i­cal dis­ad­van­tage over a pe­riod of time and as such present a de­vel­op­men­tal chal­lenge.”

The in­ter­na­tional re­port like ‘Do­ing Busi­ness of the World Bank and WEF’ and the re­port on com­pet­i­tive­ness also points to­wards the com­plex­ity of the In­dian trade regime. For ex­am­ple, the Do­ing Busi­ness Re­port 2015 ranks In­dia 142 out of 189 coun­tries re­gard­ing ease of do­ing busi­ness. Against the in­di­ca­tor of trad­ing across bor­ders, In­dia sits at 126th po­si­tion out of the coun­tries ranked. Over­all 7 doc­u­ments are re­quired to ex­port and it takes an av­er­age 17.1 days to ex­port a con­sign­ment from In­dia. The trans­ac­tion cost to ex­port a con­tainer is es­ti­mated at US $ 1332. In­dia there­fore needs to ad­dress in-house chal­lenges to sub­stan­tially in­crease its ex­ports. Con­straints like in­fras­truc­tural bot­tle­necks, high trans­ac­tion costs, in­ad­e­quate di­ver­si­fi­ca­tion of ser­vices ex­ports and com­plex pro­ce­dures need to be ad­dressed on pri­or­ity ba­sis. The re­marks of In­dian Min­is­ter of Com­merce and In­dus­tries on the eve of FTP, 2015-20 that In­dia does not ex­er­cise much con­trol over the ex­ter­nal fac­tors but there is a lot In­dia can do to set its house in or­der, are quite apt. In-house re­forms, in a nut­shell, will de­ter­mine whether In­dia will be able to achieve the am­bi­tious tar­get set for ex­ports un­der FTP 2015-20.

The writer has a de­gree in Eco­nomic Pol­icy Man­age­ment from Columbia Uni­ver­sity and is a Chevening Fel­low on Eco­nomic Gov­er­nance.

Ac­cord­ing to the WTO Trade Pol­icy Re­view of In­dia 2011, In­dia gen­er­ally fol­lows non-tar­iff bar­ri­ers on im­ports from other coun­tries.

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