We are targeting $ 450 billion in merchandise exports in a few years. It was a statement by the Indian Minister of Trade and Industry. added. In addition to pursuing free trade agreements, the minister mentioned that tax and trade reforms are also needed, as well as lower transaction costs. The Commerce Secretary also assured us that the current year’s exports, growing between 25-30%, were ahead of the target, and saw no reason why India could not meet a target. daring $ 450 billion in just a few years. A strategic document to double exports in three years had been prepared by his ministry.
Do these statements sound familiar to you? They are very similar to current conversations about India’s trade policy and ambitions. But alas, these statements date from 10 years ago. Therefore, you can be excused if you cannot shake off a feeling of déjà vu. In 2010-11, India’s merchandise export growth rate was 37.5%, and there was huge optimism about exports. Reaching $ 450 billion was near. India’s export-to-gross domestic product (GDP) ratio, at just 17%, was considered too low compared to its Asian counterparts like Thailand at 66%, or even South Africa at 27%.
Ten years later, we are once again focusing on exports as a major engine of growth. This is timely because the global economy, led by two of its largest economies, the United States and China, is literally booming. These two economies represent almost 40% of global GDP and will experience an average growth of 5% over the next two years. This is equivalent to the growth of the Indian economy of 50%, being about a tenth of its size. The boom in international trade is manifested in high commodity prices, skyrocketing transportation costs, shortages of containers and ships, and overflowing order books. Certainly, this is an opportunity for India, and even if it managed to increase its share of the world’s manufactured exports from 1.5% to 3%, it would have doubled its exports. As such, the export execution rate in the first three months of this fiscal year indicates that a target of $ 400 billion is achievable. This goal was underlined by the Prime Minister himself in a speech to diplomatic missions abroad. Obviously, economic diplomacy will also be intensely used to further the cause of boosting exports. After five lackluster years of cumulative zero growth, the outlook is promising for an excellent export performance over the next two years, for both manufactures and services. This is mainly due to strong economic growth in the developed world, which in turn is fueled by optimism over vaccines and fiscal stimulus measures. This growth boom has a strong base effect, but it is likely to continue for a few years. The plan to double India’s exports in three years was drafted in detail 10 years ago. It just needs to be dusted off and reread. And maybe updated to incorporate new opportunities. For example, India’s special economic zones policy needs a reboot. The determining factor for success is implementation.
As we embark on an ambitious but achievable goal, here are seven important considerations. The first is the importance of free trade agreements (FTAs). Our biggest trading partner (including services) is the United States, with which we do not have a FTA. Obviously, an FTA is not a prerequisite for our export engine to continue to run. In fact, almost three quarters of India’s exports fall outside the scope of FTAs. So while we aggressively pursue trade and investment treaties with the EU, Australia, Canada and the United States, this effort should not hamper export growth. Second, almost 80% of our exports come from just 21 chapters of the Harmonized System (HS) of commodity classification codes. The remaining 78 chapters out of 99 of the HS are underutilized. Of these, there are 24 chapters that contribute between $ 1 billion and $ 4 billion and require special attention to double exports. Third, we must ensure that initiatives like Atmanirbhar Bharat (self-reliance) or production-linked incentives (PLI) do not become a cover for protectionism. Import substitution as a strategy is only acceptable if carried out with low tariff protection and subject to the same quality criteria. Fourth, export incentives must be generous enough to negate the effect of domestic taxation, in accordance with the maxim that “you cannot export taxes”. Fifth, the adoption of global value chains means that our exports will have significant import content. import barriers should be low. The downside is that exporters get reimbursed for their import duties or they can take the route of prior licenses. But every minute detail of this kind is an invitation to delays, red tape and cumbersome processes, even corruption. . Why not just keep tariffs low and let exporters focus on improving their competitiveness? The sixth aspect is the exchange rate of the rupee. Even the Indian Reserve Bank has said the currency is overvalued and the huge influx of dollars into the capital account is not helping. For exports, a slight bias in favor of an undervalued currency is preferable. India has a current account deficit, so it should not be afraid of being labeled a “currency manipulator”. And Seven This is plug-and-play access to global markets for small businesses. The ubiquitous global e-commerce players should be the channel for this, where a buyer in remote Alaska can click on an item to ship from Coimbatore. Are all of our systems designed to make this happen? Or will administrative, fiscal, currency and customs formalities overcome this potential. This is the litmus test.
Ajit Ranade is Chief Economist at Aditya Birla Group.
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