A serious effort to reach the $1 trillion target for merchandise exports by 2030 needs to begin with FY23 Budget by initiating measures in terms of infrastructure spending, reduction in tariff costs, and enhancement of credit risk cover to facilitate trade, according to a CRISIL research report.
“India has set a target of $400 billion for merchandise exports for the current fiscal and an ambitious $1 trillion by fiscal 2030. The short-term target is in sight, given the swift recovery in trade in recent months.
“But the harder part will be to keep the momentum going once global growth moderates, as will be the case past 2022, when massive stimulus packages wind down,” Dharmakirti Joshi Chief Economist, and Amruta Ghare Junior Economist, CRISIL, said in the ‘Quickonomics’ report.
Moreover, with the pandemic easing, services demand is expected to return, taking away from the one-off impetus to goods trade caused by the pandemic itself, they added.
The economists felt the upcoming Budget would do well to keep these factors in mind and do what it takes to maintain the current momentum in trade to translate targets into reality
“Exports in India have historically ridden the global growth wave. But when that recedes, as expected this calendar year, exports cannot rely on external demand alone to prop it up. India also needs to consolidate the recently seen increase in share of industrial/investment goods in overall merchandise trade.
“To tackle both these, the Budget’s focus on developing infrastructure in shipping and logistics to reduce time and non-tariff costs of trading across borders will be imperative,” the economists said.
The report’s authors observed that an increased budgetary allocation in the form of grants-in-aid, as envisaged under the Trade Infrastructure for Exports scheme (which seeks to create first/ last mile connectivity for export-oriented projects) will drive the objective of enhancing competitiveness.
High tariff costs
Referring to Budget as an instrument to address tariff costs, the economists said net terms of trade in fiscal 2022 has consistently declined, implying faster increase in import prices vis-a-vis export prices.
This year too, commodity prices are projected to stay elevated and volatile.
The World Bank, in its latest Global Economic Prospects (January 2022), states that “global macroeconomic developments and commodity supply factors will likely continue to cause recurring commodity price swings.”
Hence, a reduction in tariff costs through a change in custom duties for raw materials and inputs would help bring down imported inflation and support domestic manufacturers as well, the economists said.
They observed that facilitating finance and insurance cover for exports is another focal point.
Last year, after the budget, the Ministry of Finance had announced grant-in-aid infusion of ₹1,650 crore for the National Export Insurance Account (NEIA) to underwrite ₹33,000 crore of project exports in the FY22-26 period.
The NEIA aims to ensure the availability of credit risk cover for project exports.
“The progress on this front has been relatively slow this year. According to the Ministry of Commerce, the NEIA supported exports worth only ₹91.4 crore by issuing insurance cover worth ₹58 crore between May-August 2021 . This initiative could be expedited through announcing steps to support project exports,” Joshi and Ghare said.
The economists emphasised that simultaneously, opportunity comes knocking at India’s doors in the form of the China-plus-one policy, propelling many economies to diversify their supply chains.
“Relentless focus on electronic and electric exports will be important to take advantage of this. The Production Linked Incentive (PLI) scheme is a good starting point for this,” they added.