At 5.74% CAGR, exports growth dismal in last nine years

May 26 marks the completion of nine years since Mr. Narendra Modi took over as Prime Minister of the country. How has the Commerce Ministry performed under three ministers, Ms. Nirmala Sitaraman, Mr. Suresh Prabhu and Mr. Piyush Goyal during this period?

The Foreign Trade Policy (FTP) 2015-20 targeted doubling of exports of goods and services from $466 billion in 2013-14. By 2019-20, the exports grew to only $526 billion, a compounded annual growth (CAGR) of only 2.45 per cent. By 2022-23, the exports grew to $770 billion, far short of the $932 billion targeted to be achieved by 2019-20. That is a CAGR of only 5.74 per cent over 9 years.

In 2015, the government replaced the more focused but messier schemes like Focus Market Scheme, Focus Product Scheme, Market-linked Focus Product Scheme, Vishesh Krishi Gram Udyog Scheme etc. with a simpler Merchandise Exports from India Scheme (MEIS). Yet, the merchandise exports in 2019-20 remained at about $314 billion achieved in 2013-14. Thereafter, it grew to an estimated $450 billion by 2022-23 (a CAGR of 4.08 per cent over 9 years), mostly due to pent up demand after the pandemic, high commodity prices and high freight rates. It came after the abolition of MEIS in January 2021. Also, the export growth was mostly in petroleum products and not employment intensive sectors like garments, leather etc. The services exports have also grown mostly in the last two years, after the abolition of Services Exports from India Scheme (SEIS) in April 2020 and notably after the income tax rates were reduced for companies.  

The MEIS, a direct export subsidy, caught the attention of our major trading partner countries who challenged at the world Trade Organisation (WTO) the MEIS, the Export Promotion Capital Goods (EPCG) scheme, the Export Oriented Units (EOU) scheme, the Special Economic Zone (SEZ) scheme and so on. The government could not defend these schemes and the panel ruling at the WTO dispute settlement body went against India. That dispute is now at the appeal stage.  Meanwhile, the new FTP 2023 continues with the EPCG, EOU and SEZ schemes. The scheme for Remission of Duties and Taxes on Exported Products (RoDTEP) introduced in 2021 does not yet cover exports of some items and exports under duty exemption scheme and exports by EOUs and SEZ units. In the last few years, the government has found new ways to restrict imports through minimum import price, import quotas, pre-import registration, quality requirements etc. 

The government exited the Regional Comprehensive Economic Partnership (RCEP) negotiations. However, the other 13 Asian countries, plus Australia and New Zealand, have gone ahead and concluded the RCEP free trade agreement. Separately, our government has concluded bilateral agreements with Australia and the United Arab Emirates. Also, talks are on for trade agreements with the European Union and United Kingdom. However, India is not yet a part of any meaningful global value chains. 

At the operational level, the Directorate General of Foreign Trade (DGFT) responded remarkably during the pandemic and has used information technology extensively to facilitate several processes.  The feedback, however, is that it is easy to get the advance/EPCG authorisations but very difficult to redeem them, even after fulfilment of export obligations. 

Overall, the dismal export performance speaks louder than all the self-congratulatory and celebratory noises.

Email : tncrajagopalan@gmail.com