Modi 2.0: Credit access, easing costs remain on exports to-do list

Providing access to credit, easing costs and bridging the liquidity gap are expected to remain among the biggest worries for policymakers looking to boost exports in Prime Minister Narendra Modi’s second tenure.

Industry bodies and exporters are set to start meeting Commerce Department officials next week at a time the World Trade Organization (WTO) has dimmed its prospect for trade growth in the second quarter of the 2019 calendar year.

Pointing towards falling levels of growth in international air freight, automobile production, sales and trade in agriculture raw materials, the global body has sounded the alarm particularly for developing markets. “The outlook for trade could worsen if heightened trade tensions are not resolved or if macroeconomic policy fails to adjust to changing circumstances,” it said.

While 2018-19 was first time that outbound trade went above $300 billion for two consecutive years, exports couldn’t cross the government’s internal target of $350 billion. In the 2017-18 financial year (FY18), exports stood at $303.52 billion.

India’s exports had a disappointing start to FY20 as growth crashed to a four-month low of only 0.64 per cent in April, with sectors such as engineering goods, gems and jewellery suffering sharp contractions. Of the 30 major product groups, 14 recorded a growth in April, a steep climb down from the 20 sectors in March.

Labour intensive troubles

A reason behind this was negative growth in most other labour-intensive sectors, such as leather and leather products, readymade garments, and sectors dominated by small scale enterprises.

“Most labour-intensive sectors are still facing the problem of liquidity besides various other global challenges. In the domestic arena, issues including access to credit, cost of credit especially for merchant exporters and interest equalisation support to all agricultural exports, should be seriously looked into,” said Ganesh Kumar Gupta, president of the Federation of Indian Export Organisations (FIEO).

The FIEO has also placed a long list of demands in front of the government that it hopes will be addressed in the first 100-day work agenda being prepared by every ministry. This includes demands for exemption from the integrated Goods and Services Tax under the Advance Authorization Scheme with retrospective effect and benefits on sales to foreign tourists.

Another demand — of budgetary support for marketing and exports-related infrastructure — has found support in the Commerce Department, and a revised plan to market exports abroad is in the making, an official said.

For engineering goods, “apart from a severe liquidity crunch affecting small- and medium-sized firms, the rising cost of domestic steel and rubber” has had an impact, said Ravi Sehgal, chairman of the Engineering Exports Promotion Council.

Higher prices charged by domestic steel producers have hit the manufacturing capabilities of user industries. Indian steelmakers have had to lower prices of prime steel in world markets but the same didn’t happen in the domestic market, Sehgal added. User industries have had extensive talks with the department 

Global pressures

Policymakers are also concerned about rising China tensions that are not expected to subside anytime soon as Beijing has taken a sterner stance. The last bilateral meet between both the parties ended inconclusively on May 10 — the same day US President Donald Trump raised the tariff rate on $200 billion worth of Chinese products from 10 per cent. The Xi Jinping administration has responded by putting a similar 25 per cent import duty on US imports worth $60 billion.

The US remains India’s largest export destination, with China coming close at third position. Despite both nations now placing the entirety of their exports to each other under high tariffs, India’s exports to either have not gone up. Official data shows exports to the top-three markets for Indian goods have either contracted or grown at a much lower pace in 2018-19.

“We can’t frame policies based on bilateral actions taken by two other countries against each other. But since both are major trade partners, our priority would be to shield our industry and augment our export to both,” said another senior official.

The government has also kept a keen eye on Chinese imports, especially raw materials, for fear of dumping.