Crisil's urges focus on labour-intensive sector's issues as exports fall

Rating agency says note ban and GST had further blunted the export edge of garments, leather and jewellery sectors

At a time when global trade is set to accelerate, the fall in India's export is disquieting and structural changes in labour-intensive sectors such as apparels and jewellery need to be undertaken fast, rating agency Crisil said on Monday.

"Global merchandise trade is expected to grow stronger at 4.2%, boosting trade intensity of growth for the first time in six years i.e. world trade growth being higher than world GDP growth. Yet, India's exports have not been able to take as much advantage of the stronger trade growth unlike many of its Asian peers like Vietnam, South Korea and Indonesia." a note released by the firm said.

The International Monetary Fund (IMF) also recently pointed out that it expects global growth of trade to rise to 3.6 per cent in 2017 from 3.2 per cent in 2016.

However, the Federation of Indian Exports Organizations has pointed out that almost Rs 50,000 crore worth of refunds under the Goods and Services Tax regime are still stuck with the government, leading to a massive blockage of capital.

Exporters have also said that only about Rs 350 crore of refunds on account of integrated GST (IGST) have been released by the government for July, against Rs 750 crore claimed by exporters. Besides, the input tax credits, which form a chunk of GST refunds, are yet to be released.

Responding to growing opposition by exporters, the government last week announced greater export support to items in the garment and the home furnishings sector under the Merchandise Exports from India (MEIS) and the Remission of State Levies.

"The enhancement in MEIS rates will help in the fulfillment of orders for the Christmas festival as it will result in easing the blocked capital. It will help in the mitigation of the currency difference to some extent. However the Industry is disappointed over the announcement of the RoSL as the rate is far below than what the Industry has recommended and there has been no consideration of the central taxes rebate in the announcement. The Industry is witnessing a slowdown with jobs being lost and buyers migrating due to high cost." AshoK G Rajani, Chairman of the Apparel Export Promotion Council said.

However, Crisil has pointed out that subdued export performance in recent months cannot be attributed to unfavorable currency competitiveness. In fact, a relatively stable rupee and improving global growth suggest that domestic developments might have had a greater role to play in the current export growth slowdown - in particular the disruption caused by GST regime.

This is evident in the low export growth in sectors such as gems and jewellery, textiles, and leather which are incidentally also the most labour-intensive sectors, Crisil pointed out. It further said employment may be hit as a result in these sectors.

But while disruptions due to GST are transitory in nature, a senior Crisil economist pointed out. The revealed comparative advantage (RCA), or the competitiveness of these labour intensive sectors, has been on a sequential decline. Case in point, the 2006-2016 decade saw RCA markedly diminish for three of these sectors, he added.

The latest disruptions, earlier on account of demonetisation and now due to GST, might have pushed the competitiveness of these sectors further to the brink, Crisil has said. It added that even though disruptions related to policy changes are transitory, the structural issues plaguing these sectors need to be addressed in order to boost their competitiveness in the global market.