K R Sudhaman
It goes to the credit of Prime Minister Narendra Modi Government for bringing about a turn-around in India’s export through sustained trade reforms during the last three years in spite of adverse global economic situation. India is among the few emerging economies, which had escaped the worst of the adverse external environment. This global downturn resulted in severe downturn in global trade and sharp fall in global commodity prices damaging exports all over. It caused the worst damage to oil and mining products exporters among developing economies. But India survived this onslaught because of expanding domestic markets and government’s vigorous Make in India campaign. India also benefited because of the falling oil and other global commodity prices like steel and cement, which helped in India’s infrastructure push, thereby helping trade as well.
In this difficult global environment, India did well to achieve a booming double digit exports growth in March 2017, surpassing such high growth achieved more than three years ago. India’s exports growth, which had been in negative growth mode for nearly two years since October 2014, turned positive in September 2016. It has not looked back since then, thanks to the sustained trade reforms. This double digit growth has happened in India in March this year notwithstanding appreciating rupee, which no exporters welcome. This has only given credence to government’s exports reform strategy that more than depreciating rupee, stable currency rate will help to sustain exports growth better. Federation of Indian exporters’ organizations President G K Gupta himself acknowledged that the continuous positive growth in exports for more than half a year now is not only very enthusing and encouraging sign but also signifies the dedication, commitment and hard work done by the exporting community and government. It augurs well for India to deliver at challenging times.
The success in trade is mainly because of concerted efforts to promote make in India, push in foreign direct investment, particularly in export oriented industries, ease of doing business, digital India and skill India. All these had ensured not only increased job creation but also swelling foreign exchange reserves. Now that exports have got back to double digit growth, it is quite likely that India’s merchandise exports cross $ 500 billion and two way trade to over $ 1 trillion in coming years. If services exports included, the two way trade will go much beyond $1 trillion. One additional factor that is going to promote India’s trade is the game changing indirect tax reforms, Goods and Services Tax rollout from July one, this year. One nation, one tax and one common market is going to reduce time lost in logistics as well as lower transaction costs, pushing up trade manifold. DGFT is already working on aligning rates with the rollout of GST.
With Foreign Direct Investment up by 48 per cent from $36 billion in 2014-15 to $53 billion in 2015-16, the trade has been pushed up considerably. In 2016-17 up to December, India received FDI of $47 billion indicating, the flow will surpass last year’s $53 billion. The foreign exchange reserves have swelled from $312 billion in 2014 to $365 201. Simplification of rules, scrapping of 1200 redundant and obsolete laws, passage of real estate bill that will lead to establishment of real estate regulators, setting up of e-market for gem industry, a major export item, and so on, have considerably improved the ease of doing business in the last 2-3 years.
The recent cabinet decision approving Supreme Court verdict to retain popular Target Plus Scheme too will help to push exports. Under the Target Plus Scheme duty credit of 5-15 per cent of FOB value is provided to exporters. With growth being positive in 25 of the 30 major exports products in March, the exports are surely back on track and are on the upswing mode. It is bound to bounce back to achieve $325 billion exports in 2016-17, thereby returning to high double digit growth path. The Trade Infrastructure for Export scheme launched by Commerce Minister Mrs Nirmala Sitharaman in March will further boost trade. The challenges faced by exporters on infrastructure is huge and TIES will help create modern infrastructure like last mile connectivity to ports, besides testing labs and certification centres. It will eliminate some of the logistics bottlenecks and address other challenges. The logistics cost in India is one of the highest in the World and this body will help in bringing it down. That apart, Trade Facilitation Agreement at the World Trade Organisation, the first multi-lateral agreement in 21 years, is expected to reduce trade cost on an average of 14.3 per cent. The developing countries like India stand to benefit as it will harmonize global rules for movement, clearance and release of goods. It will make trade related administration easier and less costly, thus helping to provide an important and much needed boost to global economic growth. This will push global growth by at least 0.5 per cent helping the global economy to push growth further. This will provide fillip to exports along with several government measures taken to take India’s share in global trade to 5 per cent from the present 1.9 per cent.
With India being the World’s fastest growing economy, the Modi government has put in place several measures including reversing inverted import duty structure, to take advantage of the green shoots in the country’s exports. The trade reforms that are being implemented will facilitate India’s merchandise exports to achieve projected $882 billion by 2020. Coupled with services exports, India’s total exports will be around $1.3-1.4 trillion. The total two way trade could exceed $2.5 trillion in such a scenario. This is an ambitious target but achievable in a face of reforms. GST is perhaps one reform that has far-reaching and game changing implications, next only to economic liberalization of 1991.
*K R Sudhaman, who has been a journalist for over 40 years, has been Economics Editor of Press Trust of India, Financial Chronicle and TickerNews.
Views expressed in the article are author’s personal.