To counter widening CAD, govt focuses on computer services, tech export

Monday's meet on boosting exports also called for slashing imports

The steady growth of the largest category of export — computer software — has gripped the attention of policymakers as a way to counter the country’s widening current account deficit (CAD). Currently pegged at $120 billion, exports from the sector have been promised special support by the commerce department with the aim of taking it to $150 billion by 2023-24. The decision was taken at an inter-ministerial meeting on Monday.

“Measure like maintaining supremacy in major markets such as the US, the European Union and the UK as well as creating software rather than servicing tech clients were suggested,” a senior trade department official said. According to Reserve Bank of India statistics, software services make up for more than 40 per cent of all services exports from India. 

Since the start of the year, the rupee has depreciated 14.8 per cent, becoming the worst performing currency in the Asia-Pacific region. It closed at 73.34 to the US dollar on Wednesday.

As a result, exports rose by more than 4 per cent in July. However, the government will discuss ways to reduce sectoral imports that have also continued to swell by 5.35 per cent in the same month, the official added.

Electronics push 

On the merchandise trade side, the government will continue to focus on domestic electronics production. “The last inter-ministerial meet saw widespread support for production incentives, as well as expansion of the phased manufacturing programme (PMP),” a senior government official said, hinting at further tariffs on electronic imports.

Under the PMP, developed by the ministry of electronics and information technology and announced last month, the government aims to enable large-scale manufacturing of mobile phones, one of the largest selling consumer goods. Sub-parts such as mechanics, microphones, receivers, keypads and USB cables, among others, have been targeted. 

By industry estimates, only about two per cent of value addition is done in India in mobile phone manufacturing. Raising that figure over the next 10 years is the PMP’s aim. The plan was proposed by a panel of industry and the government.

The sector saw $6.07 billion exports in 2017-18 accounting for only 2 per cent of all outbound trade. This has been targeted to cross $18 billion within the next five years. However, this may be easier said than done as the trade gap for electronics products has doubled in the last five years.

The deficit stood at $38.94 billion for 2017-18 compared to $18.86 billion in 2013-14. Pankaj Mohindroo, national president of the Indian Cellular Association, said the steep rise in imports of electronics was only expected for want of appropriate measures in the National Policy on Electronics 2012.

The sanctions on Iran, payment problems in Venezuela as well as equally large depreciation in the currencies of competing nations of Argentina, Turkey, South Africa, Russia and Brazil have reduced export growth prospects in 2018-19, according to the Federation of Indian Export Organisations (FIEO). Banking restrictions by the US treasury department on countries like Syria, Sudan, Libya, Iraq, among others, have also not helped matters.

“On the domestic front, flow of credit to export sector is a huge issue as export credit declined by over 41 per cent in April-June, 2018, while export growth during the same period grew by over 14 per cent. Such mismatch does not augur well for exports and thus needs to be addressed immediately. The GST refund pendancy should be brought to a month level by addressing technical issues and focusing on Input Tax Credit refund, moving it to an electronic platform,” FIEO president Ganesh Kumar Gupta said.

Indian exports have always been influenced by the growth in global trade and therefore the subdued global trade forecast of 3.9 per cent in 2018 and 3.7 per cent in 2019 as against 4.7 per cent in 2017 will have adverse bearing on Indian exports, Gupta added.