The Economic Survey 2021-22 has projected Indian a GDP growth of 8-8.5 per cent in 2022-23, with exports presumably playing a crucial role. India’s exports rebounded strongly and surpassed pre-Covid levels during 2021-22, aiding in the process growth revival of the economy. Merchandise exports touched an all-time high to $336 billion in 10 months of this year.
Union Budget 2022-23 could help turn exports into a formidable growth driver as it sets its priorities right — with emphasis on infrastructure development, building capacities in sunrise sectors and continued support to R&D — to strengthen Indian exports.
While the rationalisation of Customs duties and tariff simplification would bolster the export potential in the short term, the infra and institutional push envisioned in the Budget would go a long way in generating positive externalities for the export ecosystem in the medium to long-term.
The calibration of Customs duty to promote domestic manufacturing of electronic goods would enhance electronic exports. Further, the reduction in Customs duties on diamonds, gemstones and chemicals will lower input costs and make their exports more price-competitive. This acquires added relevance as gems and jewellery, chemicals and electronic goods are among the leading export commodities. In order to incentivise labour-intensive exports, exemptions are being provided on items used by bona fide exporters of handicrafts, textiles and leather garments and footwear.
Will reduce logistics cost
An efficient and competitive logistics ecosystem is crucial to boost exports. While India has made substantial progress in trade-related logistics, yet the logistics cost in India (around 14 per cent of GDP) is higher than in developed countries (8-10 per cent of GDP) (LEADS 2021 Report) — putting our exports at a disadvantage.
Budget 2022-23 has placed considerable emphasis on the PM Gati Shakti National Master Plan that would build world-class infrastructure through logistical synergy among different modes of movement. This would facilitate seamless multimodal connectivity and logistics efficiency, thereby reducing the logistics cost and time significantly.
Further, the Budget has increased capital expenditure by 35 per cent to crowd-in private investment, to enable virtuous cycle of investment for developing holistic and integrated infrastructure. All these put together would enhance the competitiveness of India’s exports manifold.
Given the fact that only eight products constitute more than 55 per cent of total exports, there is a critical need for product diversification in India. In this regard, the support to sunrise sectors such as artificial intelligence, geospatial systems and drones, semiconductor and its eco-system, space economy, genomics and pharmaceuticals, green energy, and clean mobility systems through facilitative policies and incentives for R& D assumes significance to broad-base the export basket.
Further, the concept of ‘One Station-One Product’ would feed in the initiative of developing ‘Districts as Exports Hub’ and support the efforts of the Government in diversifying the product basket of Indian exports. This would also help the local MSMEs to be part of the supply chain. Among other budgetary announcements, the additional allocation of ₹50,000 crore and extension of Emergency Credit Linked Guarantee Scheme (ECLGGS) up to March 2023 and infusion of funds into Credit Guarantee Trust for Micro and Small Enterprises (CGTMSE) scheme would benefit the MSME sector.
Thrust on digitisation
The focus on digitisation in the Budget is well placed as the WTO study (February 2021) shows that the global trade growth is estimated to be 2 per cent higher annually, on average, due to adoption of digital technologies by 2030. India, by being the largest software exporting country (WTO report 2021), is expected to gain with increased servicification.
The proposed introduction of Central Bank Digital Currency (CBDC) by RBI in 2022-23 is a welcome step to boost the digital economy. If it enables cross-border payments, it would reduce the high transaction costs involved in the extant cross-border payment eco-system considerably, in turn bolstering exports.
The emphasis on Ease of Doing Business 2.0 and Ease of Living, through active involvement of States, digitisation of manual processes, bringing in standardisation and removal of overlapping compliances, would lessen the compliance cost and enhance the ease of exporting. In particular, in order to make States partners in export promotion, it is proposed to replace the Special Economic Zones Act, with reforms suggested in Customs administration of SEZs to make it fully IT driven, more facilitative and only risk-based checks, thereby improving ease of doing business by SEZ units considerably.
Overall, Budget 2022-23 has stayed true to the long-term goal of complementing macro-growth, enabling exports as a key driver through increased competitiveness and diversification. This would allow India to position itself at the central-stage in global value chains in the post-Covid world.
The writer is an officer of Indian Economic Service, working as Deputy Director in Department of Economic Affairs, GoI. Views are personal. Valuable comments from T Gopinath, Director, are acknowledged