Merchandise exports must grow 27% CAGR to capture 5% world mkt: ex-advisor

Former FinMin advisor H A C Prasad says India's current share is a miniscule 1.7%, suggests policy changes to get to 5%

A former senior economic advisor to the Ministry of Finance, who penned two chapters on services and exports in the Economic Survey for 2017-18, says India's share in world merchandise exports is still very small at 1.7 per cent and that outbound shipments should increase by a CAGR of around 27 per cent over the next five years to raise the share to five per cent. China's share in the world merchandise exports is 13.2 per cent. 

H A C Prasad says while the task is formidable, it isn't impossible provided some policy measures are taken.

"While exports have started picking up again, there is the fundamental question of reaching a respectable share in world exports," he told Business Standard. 

He suggested shift in the focus of exports to demand-based from the current supply-based approach. To substantiate his viewpoint, he said India's exports of high-value products such as engineering, electrical and electronics don't contribute much to world imports. 

Besides, there is the issue of tariff policy. While the average peak customs duty is 10 per cent, the effective rate is just 2.8 per cent due to various concessions and exemptions given to exports. This is a double-edged sword, since India is losing on negotiations in the World Trade Organisation because of its high tariff, whereas in practice the effective rate is very low. 

Refunds are not taken into account in the WTO negotiations, he said. 

Prasad suggested bringing down customs duty to below 10 per cent, even if not in sync with ASEAN countries' tariff of 5 per cent, while doing away with exemptions and concessions. 

He said the means to achieve this resides in the goods and services tax regime. "Many duties have been subsumed with GST and if tariffs are reduced, some export promotion schemes can be phased out," he suggested. 

At a time when the 15th Finance Commission has just begun its work, Prasad called upon linking devolution of funds to states with their export efforts. 

Calling for reviewing free-trade agreements (FTAs), regional trade agreements (RTAs) and comprehensive economic partnership agreements (CEPAs), Prasad said these agreements have benefited trading partners more than India. 

"So, a review of existing FTAs, RTAs and CEPAs is needed. This should not be just academic exercise, but should be down to earth based on the experiences of the sectors affected by these agreements," he suggested. 

Though India has attained a rank of 100 in 2017 against 130 in 2016, its ranking in terms of trading across borders was still at 146. Prasad suggested that trade and industry should be roped in to point out specific steps to be taken to improve these indicators. 

Then, United States Trade Representative, Ministry of Economy, Trade and Industry (METI) in Japan and the European Commission come out with regular reports on foreign trade regulations for their respective countries or regions. India needs to take a leaf out of these efforts and prepare such reports from the national perspective, as these would be useful for bilateral and multilateral negotiations.

What is also required is a clear cut agriculture export policy, Prasad said. "Along with the government MSP policy, restricting imports of agri items affecting livelihood concerns is also important. 

Finally, he suggested creation of an ombudsman to resolve exports-related problems and disputes.