India's export problem

Mere tinkering will not help

The new data from the Union Ministry of Commerce has revealed that India’s exports shrank by over 6 per cent in August, a reminder of the long-term slowdown that has plagued exporting sectors. While there is no immediate impact of this structural problem on the stability of India’s external balance, since imports have also been dropping, thanks to a demand crunch domestically, there is nevertheless a problem of exports that must be addressed. The decline in exports of engineering goods, which fuelled a minor recovery in the last financial year, is particularly troubling.

Union Commerce Minister Piyush Goyal was right to argue for the centrality of exports in any growth strategy when he pointed out last week at a meeting of the Board of Trade that India needed 19-20 per cent growth in outbound trade if it is to achieve economic growth targets. He also argued that exports worth $1 trillion in the next five years were “eminently doable”, and that there was a huge opportunity for Indian exporters in the otherwise troubling context of the US-China trade war. Even the global slowdown in trade engendered by this tension nevertheless offers a chance for India, with a measly 2 per cent of world trade, to expand into new markets. 

While nobody can disagree with the appropriateness of this aim for India’s exports, the fact is that it appears detached from the reality of the sector. The shrinkage in August is not an exception; indeed, this is a second time this financial year that exports have shrunk year-on-year. In this context, the measures for export promotion announced by Union Finance Minister Nirmala Sitharaman at a press conference over the weekend take on even greater significance. Ms Sitharaman announced a new scheme of incentives for exporters, to be called Remission of Duties or Taxes on Export Products, as a replacement for the Merchandise Exports from India Scheme, which had become controversial at the World Trade Organization. The question is whether minor tinkering genuinely makes Indian exports competitive in the longer run. There are structural problems of red tape and credit availability, which need to be addressed. Ms Sitharaman did indeed take steps in that direction, however. An automated refund of input tax credit (on the goods and services tax) for exporters, which the finance minister mentioned, would help ease the working capital crunch, as would the relaxation by the Reserve Bank of India of priority-sector lending norms to exporters. Both of these have also been in the works for a while, however, so there was little new in the package that Ms Sitharaman announced. 

What would really make a difference, however, is global benchmarking of port performance. The finance minister announced that export clearances — including some customs requirements, which are currently processed manually — will be digital. She set a December deadline for this change. The point must not be the use of technology for its own sake, however, but to bring down the turnaround time for both ships and trucks to global standards. Ships are turned around in global ports in half a day; trucks in 30 minutes. This must be the aim, and if it can be achieved in short order, Indian export competitiveness will see a much-needed jump.