Recent data on the external front, including exports, current account deficit, and balance of payments, have been disturbing. Given the current fragile global economic environment, the upcoming Foreign Trade Policy (FTP) will need to come up with innovative new steps to deal with emerging challenges.

INDIA'S EXPORTS

Exports surged remarkably in the first half of the year, but the growth rate dropped to single digits for most of the following months, owing to flagging demand in India's major markets of Europe and the US. The overall figure for 11 months, from April 2011 to February 2012, stood at 21.4 per cent, and exports may fall slightly short of the target of $300 billion set for the year. However, going forward, troubled conditions are likely to continue, as Europe struggles with belt-tightening, and the US market exhibits slow recovery.

The slide in India's export growth rate is of greater concern, since its demand for goods and services from the rest of the globe remains strong at 29.4 per cent during the first 11 months of the fiscal year. Oil prices have displayed volatility, and India's oil imports were up by 40 per cent during April-February 2011, as compared to the previous year. Demand for electronics, gold, and coal is also robust. The trade deficit is expected to come in at $175-180 billion for the whole year.

According to the RBI, the Current Account Deficit for the April-December 2011 period has thus increased to 4 per cent of GDP, crossing the figure during the Balance of Payments (BoP) crisis in 1990-91. Similarly, BoP was in negative territory for the third quarter, pointing to insufficient fund inflows from various sources, including FDI. Although foreign exchange reserves cushion the impact, prudent management of the trade balance would impart greater stability and certainty to the external sector of the Indian economy. Since imports are vital for growth, it is important to focus on enlarging India's exports, both goods and services.

The Commerce Ministry's ‘Strategy for Doubling Exports' envisages an exports target of $500 billion by 2014. This wouldn't be easy to achieve, if global markets remain subdued. Indian goods have strong brand equity, and have the potential to move up the value scale and tap new markets. A multi-pronged, differentiated strategy is required for developed countries and emerging markets.

In Europe and the US, which together account for 35 per cent of India's exports, the idea should be to retain market share and expand value-added products. In emerging markets, there is a need to venture into new terrains and new products. Overall, it is important to shift away from primary commodities and towards manufactured, value-added products.

FOCUS ON SCHEMES

These goals translate ultimately into boosting the competitiveness of Indian goods in global markets. With most large emerging economies on a similar path, India would need to be quick and efficient in addressing its internal hurdles to export competitiveness. Infrastructure gaps and reducing cost of credit must be the primary focus.

The FTP must take immediate supporting measures, including retaining the Focus Market Scheme (FMS) and Focus Product Scheme (FPS), and widening their applicability to more markets and products. Both these schemes offer incentives to exporters for specific markets and products that may be difficult to reach. The Market-Linked FPS further offers benefits for placing specific products in specific markets.

Further, the key areas of concern to exporters with respect to their global competitiveness are technology, Special Economic Zones and transaction costs.

For technology alignment, the zero-duty Export Promotion Capital Goods (EPCG) scheme has helped exporters of key products such as engineering goods, textiles and pharmaceuticals upgrade their production facilities. Expiring on March 31, 2012, it should be extended for a further period, till 2014, in line with the export targets.

The Status Holder Incentive Scrip for capital goods import can be expanded to include technology and capital goods related to safety equipment and some other areas.

SPECIAL ECONOMIC ZONES

The SEZ facilities now account for a third of India's exports, but their progress hasn't been as expected due to continued infrastructure deficiencies and overall transaction cost burden. It is possible to revive SEZs by allowing them the flexibility to cater to domestic markets on payment of requisite taxes, which would also boost FDI. Hinterland connectivity, power supply and taxes such as MAT and DDT are issues that deter SEZ functioning.

Transaction costs continue to impose an additional burden on exporters. 24x7 export clearance is required for reducing transport costs. Further, administrative procedures matters could be more streamlined. For example, the form for exporting excisable goods, ARE-1, can be used for weekly exports to a single customer, rather than for each consignment. Post-shipment processes must also be simplified in order to speed up transactions.

Finally, certain sectors require special attention. In textiles and apparel, India is ceding ground to new exporting nations, while in automotives, the rest of the countries are rapidly moving up in competitiveness. Sectors such as electronics, machinery and chemicals are top globally-traded items, where India has a good chance of raising its exports, given its inherent manufacturing strengths.

The FTP must revitalise exporter confidence and bring changes for optimising export growth in the current global economic atmosphere.

(The author is Director General, Confederation of Indian Industry.)

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