The Hindu Business Line : New Exim Policy — Putting export growth on higher trajectory

The focus of the annual supplement to the NFTP (2004-09) is on liberalisation, openness, transparency and globalisation, moving away from both quantitative and qualitative restrictions, while improving the competitiveness of the economy to meet global market requirements.

ONE OF the key factors instrumental in changing the face of the economy since 1991 has been its external sector. Export promotion has been, and continues to be, a major thrust of trade policy. In this backdrop, the New Foreign Trade Policy (NFTP) 2004-09 announced last July was a novel attempt to boost India's external sector with the objective of doubling India's share in world exports from the current 0.82 per cent to nearly 2 per cent by 2010.

Last week, the Centre announced the annual supplement to the NFTP whereby some fine-tuning has been done to the policy announced last year and certain new targets and objectives have been set. The new policy projects a higher growth trajectory for the country's exports, expecting them to touch $92 billion this fiscal and $150 billion by 2008-09.

An analysis of the NFTP (2004-09) reveals that it seems to have worked wonders. This can be seen from the targets set for exports and the actual results. While the NFTP had set a target of $75 billion worth of exports for 2004-05, the actual figure is $80 billion. Further, in 2004-05, exports clocked a growth rate of 24 per cent and, in the last three years, have been growing in excess of 20 per cent. Export growth was 20.3 per cent in 2002-03, 21.1 per cent in 2003-04 and 24 per cent in 2004-05. The NFTP provided a major thrust to such sectors as agriculture, handicrafts, gems and jewellery, leather and footwear.

As a result, exports in the gems and jewellery sector grew 21.7 per cent from April to October 2004-05, while agriculture and allied products saw 10.9 per cent growth and leather 21.7 per cent. Since these sectors are performing well, in the annual supplement to the NFTP, the Government has laid stress on sectors such as marine products, export-oriented units and services.

Given that the services sector is growing at more than 8 per cent and contributes more than 50 per cent to India's GDP, the setting up of a services export promotion council to further boost this sector is a welcome measure. In fact, the NFTP had mentioned the proposal to set up such a council. The annual supplement has several other features, such as the setting up of an inter-State trade council for better policy coordination among the States to boost international trade, a package for modernisation of the marine sector given the large and growing exports of marine products, and removal of export cess on agricultural and plantation commodities to boost exports of this sector. Special incentives have been announced for gems and jewellery, one of the top export items (with a share of nearly 15 per cent in the export basket), extension of Export Promotion Capital Goods scheme, and so on.

Another plus point of the annual supplement to the NFTP is the proposed reduction in the transaction costs from 15 per cent to 8-9 per cent. India was not able to compete effectively with China, as the transaction costs there are 3-4 per cent, and the latest reduction will go a long way in enhancing the former's competitiveness.

One of the weaknesses of India's economic growth has been the regional disparities across the States. To bring about more regional parity and assist the backward States to grow and develop, for the first time, the annual NFTP has set up a Rs 25,000-crore fund to help some of the backward States that are in need of social and physical infrastructure; this fund would be open for five years.

However, the Policy is not without its drawbacks. It fails to address certain critical issues. For instance, one of the important sectors with high growth potential is the pharmaceutical industry. With $4 billion in domestic sales and over $3 billion in exports in 2004-05, the sector is all set to cross the $50-billion mark in exports in the next five years. But the annual supplement to the NFTP has not given any specific incentives to the pharma industry to facilitate an increase in exports. Second, procedural hassles have always acted as a major obstacle to India's exports. For several years now, there has been a proposal for clearing all export procedures online with the help of the Directorate-General of Foreign Trade. But there has been no implementation of this.

Even in this current policy, the government has announced that the DGFT would move towards a more automated electronic environment for filing, retrieval and authentication of export documents. But, given the track record of the government in this regard, this may take a while. The annual supplement to the NFTP talks about changing the names of the export promotion councils to trade promotion councils. However, it is not clear how the change in name will help facilitate trade and exports.

Like other policies, the NFTP is full of sops and incentives for exporters. For instance, the various export incentives cost the Government about Rs 40,000 crore. But are they really needed?

No discussion has been held on the effectiveness and implementation of the schemes, existing and proposed. Another critical problem affecting India's export is infrastructure, especially world-class ports. It has become imperative to ease the congestion in Indian ports and facilitate better and quicker delivery and offloading of both exports and imports. But the policy does not address this critical issue.

Overall, it cannot be denied that the NFTP (2004-09) and its annual supplement announced last week have given a major impetus to industry and exporters. The target of achieving exports of $150 billion by 2008-09 is very much in sight, given that exports have shown a consistent increase in the last three years. This can also be attributed to the changing composition and direction of India's foreign trade.

A significant feature of the direction of India's trade has been that it is exporting much more to Asian countries (nearly 25 per cent of total exports) and exports to Africa, West Asia and Latin America are also on the rise. Therefore, India's dependence on traditional partners such as the EU and the US has come down significantly. The recent FTAs that India signed with Thailand and Asean (Association of South-East Asian Nations) are expected to further boost its exports to the Asian region.

There has been also a major change in the composition of exports and imports. From being a major importer of foodgrains India has become food-surplus, and instead of importing foodgrains, edible oils and consumer goods, India is a big importer of capital goods and petroleum, the basic drivers of industrial development.

A close look at India's export basket reveals that dependence on agriculture has come down over the years.

For instance, the share of agriculture and allied products in total exports dipped sharply from 44.2 per cent in 1960-61 to just 11 per cent in 2003-04, while that of manufactured products increased from 45.3 per cent to nearly 76 per cent in the same period.

This clearly depicts the changing production structure of the economy and the transition from an underdeveloped, backward, primary goods-dependent economy to a more vibrant, industrial power.

According to the figures in the annual supplement to the NFTP, India's merchandise exports touched $80 billion and its export of services touched $30 billion, showing strong trends of increasing further in the coming years.

The focus of the NFTP (2004-09) is on liberalisation, openness, transparency and globalisation, with a basic thrust on export promotion and outward orientation, moving away from both quantitative and qualitative restrictions, while improving the competitiveness of the Indian economy to meet global market requirements.

The NFTP is indeed commendable and given the recent fine-tuning to the policy, India seems all set to embark on a higher growth trajectory and make its mark on the international scene along with China.

(The authors are on the faculty of the Indian Institute of Foreign Trade, New Delhi.)

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