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The NDA sought to set the bar high for India’s external trade when it formed the government in 2014, setting targets to double exports of goods and services in five-six years and gain a larger share in global trade. But one decade and two successive governments later it continues to struggle to push exports, contain imports, especially from China, and bridge the increasing trade deficit.
To be fair to it, the global situation has not been very conducive for exports during most part of its two terms with economic uncertainty, growing protectionism, high commodity prices, the Covid-19 pandemic and worsening geo-political tensions, including the Russian invasion of Ukraine and the Hamas-Israel war, adversely affecting demand and performance.
However, the setbacks notwithstanding, the fact that India’s share in global goods exports managed to barely increase from 1.7 per cent in 2014 to 1.8 per cent in 2023, while trade deficit widened and product diversification remained negligible, is a matter of some concern.
It definitely highlights the need for much more focussed planning and targetted and effective policy making.
On its parts, the NDA has been trying to accelerate trade growth by measures such as forging free trade agreements, coming up with WTO-compatible export promotion schemes and laying emphasis on domestic manufacturing through schemes such as PLI. But these are yet to lend the necessary momentum to exports to make them touch the aspired highs.
Export targets
Goods exports from India witnessed several ups and downs since 2014, mostly in sync with global demand. Exports rose from $314 billion in 2013-14 to $ 451 billion in 2022-23, clocking an average annual rate of just a little more than 4 per cent. Imports grew at a higher rate of over 5 per cent from $450 billion in 2013-14 to $716 billion in 2022-23
As a consequence, India’s trade deficit ballooned to $265 billion in 2022-23 compared to $136 billion in 2013-14, particularly due to increase in high value imports of commodities such as oil and gold.
India’s services exports increased from $167 billion in 2013-14 to $322 billion in 2022-23, notching up a slightly higher average growth rate than goods with healthy performance of sectors such as telecom, computer, information, and transport and travel.
However, compared to the NDA-1 government’s target of near-doubling of exports to $ 900 billion by 2019-20, actual exports of goods and services that year fell way short at about $600 billion.
In 2022-23, India’s goods and services exports touched a record $776 billion, but the target of $900 billion was still elusive.
FTP 2023
Last year, when the government came up with Foreign Trade Policy (FTP 2023), a policy without an end date replacing the earlier five-year ones, the export goals were further revised upwards. Now the country has an even more ambitious export target of $1 trillion of goods and $1 trillion of services by 2030.
While the new FTP is based on the principle of continuity of time-tested schemes facilitating exports and responsiveness to the requirements of trade, the pertinent question here is whether its stiff targets can actually be met.
FTAs
Signing new FTAS with countries where there are complimentarities, including developed nations, was identified by the NDA as one of the ways to increase exports in its second term. Interestingly, in its first term, the NDA was skeptical about FTAs and debated its usefulness as existing pacts with Japan, South Korea and the ASEAN signed during the UPA regime disproportionately benefited the other side.
One reason for India’s higher trade deficit has been the inability of Indian exporters to use the older existing FTAs to their advantage. Post signing of the pacts, India’s exports to the regions increased very little compared to the spurt in imports from the ASEAN region, Japan and South Korea..
China factor
The NDA started its second term by exiting the long negotiated ASEAN-led Regional Comprehensive Economic Partnership. A primary reason was that the pact would help China, which could gain duty free access to Indian markets directly or indirectly, much more than India.
However, soon after coming out of the Covid-19 pandemic, the government’s attitude seemed to turn favourable towards free trade pacts.
Over the last two-three years, India concluded FTAs with Mauritius, the UAE, Australia and more recently with the four-member bloc of European countries–the EFTA. But care has been taken to ensure that most of the pacts have very little to do with China.
Two more pacts, one with Oman and the other with the UK, may be signed soon after the general elections and an ambitious one with the EU is also in the pipeline.
Whether India will actually be able to use these pacts to propel its exports and reduce the trade deficit is something that is yet to be seen. What is to be watched out for is the effect of the elimination of import duties committed to the EFTA bloc of Switzerland, Norway, Iceland and Liechtenstein is on the domestic industry.
WTO compatibility
Another way to boost exports is through export promotion schemes but devising ones that don’t flout WTO norms has been a challenge for the NDA government. The popular Merchandise Export from India Scheme launched in the FTP 2015-20 (replacing and clubbing several older schemes) soon came under WTO scrutiny for being non transparent.
It had to be then replaced with the Remission of Duties and Taxes for Export Products (RoDTEP) scheme. The input duty remission rates were painstakingly calculated for the scheme by an expert panel to ensure greater transparency and full WTO compatibility, yet a few export items have been targetted recently by the EU and the US that India is now trying to sort out.
What lies ahead
Looking ahead, India continues to face the tough task of negotiating export growth in a lethargic world economy and geopolitically challenging landscape. Containing imports from China, an important element for bridging trade deficit, will be equally difficult as despite several restrictions inflows continue to rise.
India’s existing and new FTAs, by focussing on product and market diversification, could provide succour if handled well.
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