Push to exports: The third round of the stimulus addresses structural problems faced by exporters

| Updated on September 16, 2019 Published on September 15, 2019

The Centre on Saturday has claimed that green shoots of a turnaround are visible in terms of industrial growth

Faced with a 1.53 per cent fall in April-August exports in dollar terms (a 6 per cent drop in August, year-on-year), it was only appropriate that the Centre should unveil measures to boost this sector, which accounts for about 20 per cent of the GDP and has a significant MSME presence (40 per cent of output). Besides unveiling a scheme for ‘Remission of Duties or Taxes on Export Products’ (RoDTEP), which seeks to compensate exporters for levies outside the GST net, the Centre has also taken note of some supply bottlenecks. The RoDTEP will replace existing support schemes, such as the Merchandise Export Incentive Scheme, which have run into trouble at the WTO. While the Centre claims that the RoDTEP is WTO-compliant, the contours of the scheme are not clear. India’s export subsidies have been challenged on macro-economic grounds; the US and others have contended that India can no longer claim ‘special and differential treatment’ for its domestic sectors as its per capita income has crossed the $1,000-level. The export sector needs not just easy credit, for which the priority sector space has been expanded, but also the capacity to access markets and information in a digitised world. An automated refund of input tax credit (exports are zero rated) should ease working capital concerns of MSME exporters.

It is noteworthy that the Centre has sought to address two significant structural problems: reducing export turnaround time in ports and airports and improving product standards. The Economic Survey 2016-17 points out how “the costs and time involved in getting goods from factory to destination are greater than those for other countries”, such as China, Bangladesh and Sri Lanka. India’s logistics cost, it observes, is $7 per km of road transport, against $2.4-2.5 in the case of China, $3.9 in Bangladesh and $3 in Sri Lanka. A working group for the enforcement of technical standards in industrial products could help overcome the problem of non-tariff barriers. The plan to create a certification infrastructure in PPP mode is a welcome move. However, agriculture exports too require enforcement of similar standards to overcome rejection on sanitary and phytosanitary grounds. India’s exports are likely to face global headwinds in current times on account of the US-China trade war, endemic global slowdown and the rise of protectionism. Yet, it should be possible for India to create niche markets and brands. Exports require an investment in clusters and infrastructure, rather than essentially unsustainable subsidies in some form or the other. A depreciating rupee should be made to work to India’s advantage.

The Centre on Saturday has claimed that green shoots of a turnaround are visible in terms of industrial growth. A renewed push to affordable housing by easing finance confirms the general thrust to revive the economy through a credit push and fiscal incentives to business rather than public investment. This bias should be reviewed.

Published on September 15, 2019
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