Trade policy review provides temporary fixes but lacks a long-term approach

As a sort of emergency measure, the Centre in its mid-term review of trade policy (2015-20) unveiled a slew of relief measures for labour intensive exports which have been badly hit by GST. Delays in receipts of input tax credits have disrupted their operations — perhaps as a result of which exports were down by 1.1 per cent in dollar terms in October, breaking a rising trend of over a year. The Rs. 8,450-crore package for manufacturing and services exports amounts to a 33 per cent increase in existing export incentives of over Rs. 25,000 crore. Apart from the readymade garments sector, the other beneficiaries are leather products, agriculture and marine products, carpets, telecom and electronics components, medical equipment, accountancy, architecture, legal education and restaurants. Some of these sectors being fragmented and unorganised, they were impacted by demonetisation as well. However, the export incentives are in force only till June and March next year for manufacturing and services, respectively — and for good reason. According to WTO rules, a country whose GNP per capita crosses $1,000 over three consecutive years (at 1990 US dollar rates) cannot continue with export subsidies. India has already been called out here with respect to its per capita levels between 2013 and 2015. Exporters need to be weaned off subsidies sooner than later.

The mid-term review does not spell out a future roadmap for assisting exporters. Indeed, ecosystem or trade facilitation measures should be stepped up as these subsidies are withdrawn. The policy paper rightly acknowledges logistics costs to be a daunting issue. An added issue is credit at reasonable rates, for which a system of ratings and assessment needs to evolve. The state should earmark the funds it has set aside for subsidies towards creation of physical and social infrastructure — not just power, transport, telecom, but also investment in education and skills. Indeed, a shift away from export subsidies opens up resources for developing high value exports in the long run. There should be no let up in the Centre’s emphasis on easing constraints to doing business. According to the WTO, world trade in goods is expected to grow at 3.6 per cent in 2017, against 1.6 per cent in 2016; there are opportunities to be tapped as the world economy shows signs of recovery.

While observing that new products and markets need to be developed for exports, the review is silent on key policy concerns such as the connect between ‘Make in India’ and the country’s tariff strategy in forums such as the Regional Comprehensive Economic Partnership (RCEP) and WTO. This emerged as an area of disquiet at the recently concluded RCEP meet in Hyderabad. Export of IT services face a period of uncertainty, thanks to technological changes and tight immigration policies. Likewise, the impact of e-commerce on local trade and manufacturing needs to be articulated. These issues need to be addressed at the earliest by taking the stakeholders and people into confidence as India faces up to challenges at WTO and other forums.

(This article was published in the Business Line print edition dated December 8, 2017)

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