Trade policy should look beyond West: Experts

With fears of recession looming over the US and lower growth rates forecast for key export destinations like the European Union (EU) during 2008-09, trade experts say the forthcoming annual supplement of the foreign trade policy should focus on creating competitiveness and new markets for Indian exporters. The annual supplement is scheduled to be released on April 7.

Appreciation of the rupee by more than 9 per cent during April-January 2007-08 has meant a reduction in realisation of export orders. This is evident in the 21.62 per cent export growth in the period (in dollar terms), as against 32.38 per cent in the year-ago period.

Commerce ministry data show that in the April to October period of 2007, export growth to the US slipped to 8.02 per cent, as against 13.03 per cent in the year-ago period.

Moreover, in the April to December period of 2007, exports in sectors like handicrafts were down 75 per cent, ready-made garments 24 per cent, cotton yarn and textile madeups 15.1 per cent, leather 19.6 per cent and marine products 50.1 per cent, compared with the corresponding period of the previous year.

Trade experts say that in a situation where the demand in export markets weakens, competition between countries exporting their products increases.

"In such a situation, productivity and competitiveness are the key to ensuring that exports remain buoyant. Exporters who are able to cut costs without compromising on quality bag the orders," says KT Chacko, director, Indian Institute of Foreign Trade and former director general of foreign trade.

According to Chacko, refund of state taxes like Central Sales tax (which is collected by the Centre but distributed to states), duty on electricity bills and octroi will help exporters in retaining some competitiveness. "State level duties amount to at least 3.5 per cent of cost of exports," he added.

Traditional sectors like textiles, which has a share of more than 15 per cent in the export basket of the country, is keenly looking at state duty waiver announcement in the foreign trade policy.

"Margins in the sector have been completely eroded in most of the sectors, because of which there are hardly any new export orders, especially in the garments industry," says DK Nair, secretary general, Confederation of Indian Textile Industry. According to Nair, margins used to be more than 5 per cent.

Trade experts say new markets will be crucial in ensuring healthy export growth. "Schemes like Focus Market, aimed at incentivising exports to African, Latin American and many CIS nations needed to be deepened," said Ajay Sahai, director general, Federation of Indian Export Organisations.

Exports to new markets like Africa increased by 54.25 per cent, but accounted for only 6.65 per cent of India's total exports. Similarly, exports to Latin american countries increased 42.69 per cent in 2006-07, but had a share of 3.38 per cent in the Indian merchandise exports.

Sahai and Chako also said there was a need to reduce transaction costs for exporters. "Currently, transaction costs add to as much as 1 per cent of the export value. Reducing this cost won't have any revenue implication for the government and could be addressed through the foreign trade policy," said Chacko.