Govt to review its export target in trade policy rejig

Govt described infrastructure bottlenecks, high transaction costs as domestic challenge for exports

India is set to prune its ambitious export target of $900 billion. as the Prime Minister Narendra Modi’s government works on reviewing the foreign trade policy amid continued global weakness and uncertainty.

The reassessment comes as India slogs it out in negotiations for a regional trade deal that would account for almost 30 per cent of global gross domestic product (GDP) and over a quarter of world exports, involving with China, the 10 Asean nations, Australia, New Zealand, South Korea and Japan, known as the Regional Comprehensive Economic Partnership.

The government unveiled its first foreign trade policy for 2015-2020 in April, setting a merchandise and services export target of $900 billion by 2020, almost double the $465.9 billion achieved in 2013-14. However, with the fragile global economic recovery and increasing protectionist economic policies, India is re-assessing the exports situation.

“We will review the target," Commerce Secretary Rita Teaotia told Bloomberg News in an interview on May 30. "When we fixed the target, the global situation was different and it looked achievable. Since then there has been a great deal of change. There was economic slowdown, a fall in oil and other commodity prices."

India’s export market has been sliding since 2014-15 when it contracted by 1.29 per cent and further dipped 15.85 per cent in 2015-16 from a growth of 4.66 per cent in 2013-14, according to data from the Ministry of Commerce website. 

Global slowdown

The exports have been adversely impacted by a global slowdown, a sharp fall in commodity prices and currency fluctuations, Teaotia said. "Prices of crude and petroleum products, which are very important commodities in both exports and imports basket, made a large dent in our trade numbers". Crude prices have declined 54 percent since June 2014. In financial year ending March, merchandise exports registered a growth of 4.7 percent at $274.6 billion, up from $262 billion a year before, government data show.

The Federation of Indian Export Organisations — a body set up by the commerce ministry — estimates that to achieve the $900 billion target exports will have to grow at compounded annual growth rate of 28 percent, a tall order under the current global scenario. "This growth rate is very high," director general of Fieo, Ajay Sahai, said by phone. "On a 15 percent growth rate, we will achieve $725-$750 billion by 2020."

Global trade continues to remain subdued, he said, and with softening of crude and commodity prices the majority of the nations have "lesser appetite for imports".

Foreign trade

The revised merchandise and services export target will be detailed in the mid-term foreign trade policy review scheduled before the roll out of a new nationwide sales tax from July 1. "It will be pragmatic that the government does course correction," Sahai said. "Global conditions are not as conducive as we initially thought".

Trade is a top priority for India. The Modi government has described infrastructure bottlenecks, high transaction costs and manufacturing constraints as the biggest domestic challenge for the exports. With the implementation of goods and services tax, however, India will become a unified market subsuming more than a dozen federal and provincial levies in a bid to free up trade.

"Theoretically GST should be better for exports due to better capturing of input tax credit. Foreign trade policy review will take into account all aspects,” Teaotia said.

The commerce ministry is aligning the trade policy review with the roll out of GST. Currently, exporters are allowed duty-free import of materials that go into manufacturing products for exports. However under the new tax regime, exporters will have to pay the duty upfront and later claim refund.

Export growth

Global trade is expected to expand 2.4 percent in 2017, up from 1.3 per cent in 2016, according to the World Trade Organization. Exports contribute over 20 percent to the GDP of Asia’s third-largest economy. "If exports grow by 15 percent they add about 3 percent to the GDP. India’s growth can easily go in double digit if exports grow," Sahai of Fieo said. "For every $50 billion exports, one million jobs are created in the country."

Bloomberg