Reviving exports

The finance minister ought to pay heed to his commerce ministry colleague’s appeal for more funds in order to enable the latter to offer more incentives to exporters in labour-intensive sectors. Additional incentives are needed to make India’s exports competitive. The commerce ministry, in its petition to the finance ministry, has proposed enhancing the incentives it offers under the merchandise export incentive scheme (MEIS), announced in the April 2015 Foreign Trade Policy. These incentives are meant to compensate exporters for infrastructural inefficiencies and associated costs, particularly with respect to India-made goods with high employment potential and export intensity. Currently, MEIS is allocated ₹23,000 crore and covers 7,103 items.

India’s exports have been struggling for years now — first due to slow growth in many destination nations and also due to contraction of demand from oil exporting nations in West Asia. The demonetisation of ₹500 and ₹1,000 banknotes has also adversely affected many exporters. Faced with a cash crunch, they have been unable to adequately source material and labour to fulfil orders. India’s export sector also needs to be strengthened to withstand changes that could take place in world trade, led by disruptions by the Trump administration in the US. Trade is expected to get more protectionist with the US president-elect threatening to review multilateral trade deals as well as import of goods into the US in a bid to boost domestic industry, made-in-America products and balance the country’s trade. India’s worries on that count may be limited as gems and jewellery, and apparels and textiles are among the top items exported to the US. But the disruption caused by the US could result in slowing global trade again. That could also mean global value chains would be disrupted. This could hurt India, but its impact is difficult to assess as the country is part of such chains only for a limited number of items.

Apart from giving incentives to exports, and preparing for a possibly altered trade environment, India needs to make products that find greater global acceptance. That requires getting more sophisticated with designs and giving superior finishes — two qualities a lot of Indian exports lack. Indian exporters also need to spend more on understanding the tastes of global consumers. Greater acceptance of Indian products will help the country secure better prices. Increasing the demand for Indian goods, particularly those produced in the small-scale sector, is important to create more jobs, particularly for youth. With nearly half of India’s exports comprising items manufactured in labour-intensive sectors such as gems and jewellery, textiles and apparels, agriculture and allied products, marine products, and leather goods, the Foreign Trade Policy 2015 had rightly emphasised support for such sectors. The Centre needs to walk that talk.

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