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Last Updated : Jul 29, 2019 12:33 PM IST | Source: Moneycontrol.com

Policy | For double digit GDP growth, focus on boosting exports

For sustained exports, competitiveness is the key, which depends on factors ranging from cost of credit, logistics cost, transaction cost, currency movement, productivity, skilling, marketing and branding.

Moneycontrol Contributor @moneycontrolcom
Representative image
Representative image

Ajay Sahai

Indian exports did reasonably well in 2018-19 reaching a new milestone of $331 billion in merchandise and $204 billion in services. However, contraction in global demand, increasing protectionism and high volatility in currency and commodities have added to uncertainties casting their shadow on growth.

With the ongoing US-China trade war, each revised forecast for the global trade indicates further decline over the previous ones. The ASEAN economies may suffer the most, being exports-driven. The slowdown of China and its focus on domestic consumption will also have serious ramifications for them. Commodity-exporting countries in Latin American and the CIS countries may be adversely impacted as the demand and consequently the prices are likely to come down.

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India, with huge domestic market, is likely to face less headwinds. On the contrary, the escalation of tariff between US and China has provided us a great opportunity to further increase our exports. We need to encash on it by expanding our exports and, more importantly, adding capacities, where it doesn’t exist, in minimum time so as to gain from the situation. The time is ripe to negotiate with China to get more market access, while simultaneously moving to value-added exports in our basket.

This is the time to attract export-led investment both from US and China as numerous companies are willing to relocate to keep their exports momentum bypassing increasing tariff. Such investment will not only bring technology but will also integrate India into global value chain where major trade is happening. As a medium-term road map, our focus should be on high and medium technology exports to build on huge professional manpower and our R&D capabilities.

For sustained exports, competitiveness is the key, which depends on factors ranging from cost of credit, logistics cost, transaction cost, currency movement, productivity, skilling, marketing and branding.

The cost of credit in India is much above the international benchmark, though MSME manufacturers have been largely insulated through the Interest Equalization Scheme providing 5% subvention. With cuts in the key rates by the Reserve Bank of India (RBI), the interest rates are likely to come down. The logistics cost should be brought down with a holistic view on logistics, GST, e-way bill and focus on logistics infrastructure. The Electronic Data Interchange (EDI) connectivity among all the agencies involved in Exim trade can bring down the transaction cost by over 50 per cent. Efforts on trade facilitation and ease of doing business will further accentuate it.

The Real Effective Exchange Rate (REER) of the Rupee will provide much-desired competitiveness to our exports as the Rupee is overvalued. The Rupee is appreciating, when our competitors’ currencies are depreciating giving them an edge. The REER would provide much comfort and protection to domestic manufacturers also with imports becoming costlier.

Industry also should work on increasing productivity through adopting new technologies, introducing IT in every area of operation, continuously upgrading the skills of workers and attempting economy of scale. We also need to enter into branded exports, both at the product level as well as at the company level. The government should promote Indian products, for example, citric juices, under a particular brand while companies should focus on creating their own brand so as to increase their realisation.

We have to guard ourselves against rising protectionism, more so those which violate the WTO discipline. If a country keeps it tariff within the bound rates, we should not be unduly worried about it as it is playing by the rules of the game. India is justified to use tariff to protect nascent industries and, more importantly, those suffering from an inverted duty structure. The concerns of the domestic manufacturing, facing cheaper imports through free trade agreements, should be addressed by bringing end use notifications so as to provide zero duty on parts/components/inputs required by them to compete effectively with such imports. An effective import substitution, which naturally demonstrate that domestic competition can face quality imports, would also pave the way for increasing exports.

We can achieve double digit GDP growth only if exports grow by 15-20 per cent, which is possible with an enabling and supportive ecosystem for exports and entrepreneurship to thrive.

Ajay Sahai is Director General &CEO, FIEO. Views are personal.
First Published on Jul 29, 2019 12:33 pm
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