Latest data suggests signs of recovery of India’s exports. December 2016 is the continuous 4th month when merchandise exports registered positive growth. Despite weak global demand, India’s overall Trade figures also look good, helped by the strong net foreign exchange earnings from the IT-led Services Export Sector. During this period, Government kept a watch and intervened frequently to improve the export performance through initiatives targeted at improving export competitiveness: both short and long term.
Indian government’s Export Facilitation Measures fall into three categories:
1.Reducing cost disability through new Export Schemes
2.Engaging with the world for protecting India’s interests and promoting market access
3.Strengthening internal Trade Eco System. We will discuss each in some detail.
Measures to reduce cost disability through Export Schemes
High transaction costs are major cost disability for Indian exporters. They spend at least 15% more compared to their international counterparts due to higher credit, logistics and other transaction Costs. The Government launched the New Foreign Trade Policy (FTP) in April 2015 with a focus on supporting both merchandise and services exports.
FTP also introduced many schemes to reduce cost disability of exporters. The most important is the Merchandise Exports from India Scheme (MEIS). It seeks to reduce part of such costs for products with high export and employment potential in sectors like Food Processing, Chemicals, Pharmaceuticals, Biotechnology, Defence, High Tech, Electronic Hardware, Automobile, Auto Components, Apparel & Textiles etc. MEIS thus compliments the Make in India initiative. MEIS incentives are available at 2, 3 and 5% of the FOB value of exports.
MEIS initially incentivized export under 4914 tariff lines. However, it was expanded to support additional products keeping in mind the adverse environment faced by the exporters. Currently, it covers 7914 lines. The Government in May 2016 also expanded the scheme to cover all countries. Initially, MEIS was available to a product only when exported to a notified group of countries. Such interventions resulted from the close tracking of exports performance at product and country level.
To support diversified exports from the Service sector, Government introduced Services Exports from India Scheme (SEIS) in the FTP. SEIS supports delivery of services from the healthcare, tourism, hotels, education, Legal, Accounting, Architectural, Engineering, and other business services sectors. Services delivered from or consumed in India are supported under the scheme.
Engaging with the world for protecting India’s interests and promoting market access
Most countries have turned protectionist introducing measures to discourage imports from other countries. Since the economic crisis of 2008, G20 countries alone have imposed over 2000 such measures. To safeguard India’s interests, the government actively engaged with many countries and institutions to ensure best possible market access for Indian products.
India has so far signed 10 FTAs including with Japan, South Korea and ASEAN and 6 small coverage agreements. For ensuring further market access, India is currently negotiating /expanding 16 more FTAs including a mega FTA, Regional Comprehensive Economic Partnership Agreementwith China, ASEAN, Japan, Korea, Australia and New Zealand.
India has ratified the Trade Facilitation Agreement of WTO with the hope that it will make trade regime across countries less cumbersome. India continues duty-free market access to exports from the Least Developed Countries under Duty-Free Tariff Preference Scheme and to neighbors like Nepal, Bhutan, Bangladesh and Afghanistan under SAFTA Agreement. For protecting interests of domestic industry, India took many trade defense measures like imposing anti-dumping or safeguard duties on imports from the firms/ countries using unfair trade practices.
Strengthening internal Trade Eco System
Infrastructure-Logistics costs are a significant part of the export cost. A number of projects are under implementation towards improving the efficiency of select Ports, Airports, Land Customs Stations, Inland Container Depots and Container Freight Stations. The most audacious of these is Sagarmala initiative that aims to reduce logistics cost for both domestic and export-import cargo.
Institutions- Indian Commercial missions located important countries have been activated to identify export opportunities for Indian businesses. Sector specific Export promotion Councils, Federation of Indian Export organizations and number of Trade Associations engage with exporters on resolving day to day and development issues. Export Cum Guarantee Corporation provides insurance facility while Exim bank extends long duration loans to long duration projects located in specified countries. India Brand Equity programme actively promotes Indian brands and traditional goods like tea, spices, ayurvedic products and services like yoga, wellness and health care. Council for Trade Development and Promotion has been created for making states active partners in boosting India’s exports. Board of Trade (BOT) engages with leaders of industry in promoting India’s trade interests.
Ease of Doing Business and IT initiatives- Aware of the need to simplify India’s export process, a number of measures have been taken to reduce export, import clearance time and cost. Thus the number of mandatory documents required have been reduced to 3 each for export and import. Earlier 7 documents were required for exports and 10 for imports. Major ports, custom-houses, Special Economic Zones, DGFT etc. are EDI connected. More than 95% of export transactions are processed through EDI-enabled Customs Stations. We are gradually moving towards a trade Single window system. Customs introduced Single Window Interface for Facilitating Trade (SWIFT) integrating approval process of 6 Government agencies on a single platform. On the incentive side, DGFT exchanges data with Customs, Banks, and EPCs through the secured EDI message exchange system, reducing physical interface of exporters with DGFT.
Developing new exporters-Skilling new entrepreneurs into exports is an important priority. In the last two years over 50,000 entrepreneurs have been trained under the Niryat Bandhu program implemented by DGFT, thus complementing the Startup India and Skill India initiatives.
Few web based free access tools have been created for exporters. Many firms get their first insights into India’s export products and markets from the Trade Analytics tool available at the Department of Commerce website. Firms also use Indian Trade Portal to access Trade inquiries uploaded by Indian trade missions.
Many new measures are on the anvil to make exports competitive and reduce cost and time of operations. How do we assess the impact of such measures? It is difficult to draw a linear relationship between export support measure and the real export performance as exports volumes are affected by many factors both internal and international. However, data gives few interesting insights. For example, products covered under the MEIS suffered less than half the impact of export decline than other products. Additionally, since most of the initiatives aim at strengthening the core competitiveness of the sector, they will anyway contribute to overall growth. With a strong core in place, we may soon hope to see a surge.
*Author is from Indian Trade Service.