Background:-

2015 midterm FTP review aimed at $900 billion of goods and services exports from India, to garner 3.5% share of world exports by 2020.

India will achieve export targets :-

Measures taken by the government to help achieve the target:-

• Government offered additional export incentives amounting to Rs 8,450 crore under the Merchandise Exports from India Scheme (MEIS) and Service Exports from India Scheme (SEIS).
• Out of this, Rs 4,567 crore has been allocated for MSME and labour-intensive sectors covering leather, agriculture, carpets, handicraft, marine, rubber, ceramics, sports goods, medical and scientific products, and telecommunication equipment.
• Textiles (ready-made garments and made-ups) will receive benefit of around Rs 2,743 crore from the above pool.
• The remaining Rs 1,140 crore has been allocated for SEIS benefits for export of notified services such as business, legal, accounting, architecture, engineering, education, hospital, and hotels and restaurants.
• Overall, industry tariff lines that will receive benefits under MEIS were increased to 7,914 from 4,914 in the FTP released in 2015.

There are many challenges for India to achieve such targets:-

• India registered just 10% growth in 2017-18, to $302.8 billion, against expectations of $325 billion
• India also had a 45% jump in trade deficit at $157 billion, the highest in last five years.
• As RBI data reveals, the country’s merchandise exports, having peaked at 17% of GDP in 2013-14, dropped to around 12% in 2016-17. India has underperformed even amidst robust global trade growth.
• Prominence of regional trade associations (RTA) in world because of failure of WTO
• Issues in Agriculture like shrinking land space, access of credit preventing this sector to realize its potential
• In electronic items, inverted trade duty structure had put the country at disadvantage compared to South East Asian countries.
• In labour- intensive sectors such as textiles, India is the 3rd largest exporter of textiles but still accounts for <4% of world expo.
• Economic Survey 2017-18 pointed out that while the share of manufacturing in GDP has improved slightly, the international competitiveness of manufacturing has not made great strides, reflected in the declining manufacturing export-GDP ratio and manufacturing trade balance.
• Existing exports are barely able to hold on to their market shares and new products or markets have not burst forth.
• Most importantly, segments of exports continue to go substantially in primary form and not in a value-added mode. Cotton and cotton yarn than high-end garments and made-ups is an example.
• Indian exports are sensitive to price changes, global demand and supply-side bottlenecks. The way India’s export basket has evolved over the past two decades, it has made them much more responsive to global demand as compared to price changes.
• According to the International Monetary Fund (IMF), in the long-run, a 1% increase in India’s international relative export prices could reduce export volume growth by about 0.9% for all industries and by about 1.1% for the manufacturing sector.

Logistics sector :-

• Similarly, higher logistics costs have been a major impediment to export growth. The FTP review document admits that logistics cost in India is close to double of that in developed countries. The average logistics costs in India are about 15% of GDP.
• A mere weakening of the rupee might not be enough to boost exports, at least not in a significant way when it comes to the manufacturing sector due to three possible phenomena discussed here.
• India is no longer an isolated market and exports are tightly linked to imports through twin mechanisms of input import dependence and global value chains.
• The inputs for two of India’s leading exports, petroleum and derived products and gems and jewellery, originate abroad. Crude, rough diamonds, and gold are imported to make these export products.
• There is no change in the level of attractiveness of sourcing from India for an international buyer. Therefore, it doesn’t boost exports in terms of quantity or exports in dollar terms.
• Fall in the value of rupee didn’t lead to an expected commensurate gain in manufacturing exports during the period 2004-2012 .
• Private investment needs to pick up significantly, but the woes in the banking sector may drag it down. The global economy is increasingly looking dubious and a lot uncertain with an imminent threat of trade wars breaking out. In such a scenario, India is unlikely to achieve 20-25% exports growth, which is needed to achieve double digit growth.

Contribution of different sectors to exports:-

• India has remained a peripheral player in industrial sectors that command a lion’s share in global trade, and its export thrust is confined largely to sectors that account for less than one-fourth of global exports.
• Manufactured goods (67%) – Out of it, engineering goods and gems and jewellery occupies most of it.
• Petroleum and crude products (18%) – due to India’s refining capacity
• Agriculture and allied industries (12.5%)
• Globally, agricultural products exports in 2017 comprised of processed products (chocolate, processed coffee – 44% share), semi-processed products (oilseed cake, vegetable oils – 27% share), primary bulk products (wheat, coffee beans -16% share), and horticulture products (13% share)
• Ores and Minerals (1%)

Areas to be improved are:-

• Exports need a greater focus in draft industrial policy under consideration and for speeding up the establishment of product-specific industrial clusters and enacting labour reform, at least in export zones.
• Exports will also require a sound export infrastructure by energising the Bharatmala Pariyojana to improve the efficiency of movement of goods and to cut logistics costs.
• The Sagarmala programme with its emphasis on port modernisation, capacity augmentation and port-led industrialisation will need an export orientation.
• Trade facilitation and export finance will also have to acquire high priority.
• Establishment of sector-level standards, compliance and certification mechanisms will be essential.
• And all this will need a time-bound missionary zeal from the government, the states and industry.
• India will have to fine-tune current export schemes (MEIS and SEIS) and move towards more fundamental export promotion strategies such as Trade Infrastructure for
• Export Scheme (TIES, for bridging gaps in export infrastructure) and Market Access Initiative (MAI, catalyst to promote exports on product-focus country approach) Scheme.
• Reviewing existing free trade agreements (FTAs) and negotiating future FTAs for greater market access will also be critical in such a situation.
• Measures such as enhanced trade facilitation, export and production diversification, lower logistics costs, energy efficiency, lower cost of doing business and not short-term fixes will lead to sustainable exports recovery.