Our export efforts hold the key to growth in the quarters ahead

Synopsis: India’s growth hope in the immediate future is dependent heavily on exports.

What are the challenges that impact export promotion?

Issues in remission of duties and taxes on exported products (RODTEP) scheme structuring:

Under RODTEP, Steel, pharma, and chemicals get no rebate at all, although many products using these inputs do. This kind of cross-sectoral unevenness can get India into trouble with the World Trade Organization (WTO) once again.

The scheme looks like a subsidy to selected sectors disguised as duty rollback. The scheme is not available across all sectors without exception.

Shortage of sea-borne containers: A crippling shortage of sea-borne containers has affected the use of key large-volume products in the Indian export basket (tea, basmati rice, furniture, garments).

What are the suggestions?

Firstly, the excluded products under RODTEP need the rebate if they are to survive in a fiercely price-competitive global market in the months to come.

Secondly, two policy actions are immediately necessary. At a time when container rates have shot up, there is surely a case for a sea-freight subsidy for a limited period. Even more urgently, the estimated 25,000-30,000 containers locked up at different ports owing to customs disputes need to be unloaded into warehouses and these containers freed.

Why the recently announced NMP cannot be relied upon for growth prospects?

Firstly, in the current setting, the National Monetisation Pipeline (NMP) announced in the Union Budget, will not provide any immediate help in economic growth. Because there are several procedural stages for each monetized asset, that makes revenue realisation difficult. Also, it is intended to provide only a small part of the infrastructure expenditure budgeted for the year. Hence, it is the exports that will have to drive growth. Monetization is merely a funding source.

Secondly, there are other concerns with NM. The scheme offers a participation incentive to states with a 33% matching transfer from the Centre for revenues that states realize under the scheme. This matching transfer could result in, states under-achieving the potential value realizable.

Thirdly, it must be remembered that the most attractive schemes can sometimes fail to find appeal among all states. For instance, the NMP document refers to the Scheme for Special Assistance to States for Capital Expenditure announced in October 2020. It offered states an interest-free loan with repayment after 50 years to complete stalled capital projects, or settle the outstanding bills of contractors. The only constraint was that the funds had to be used by the end of March 2021. However, Tamil Nadu did not sign on for its share of ₹351 crore.

Fourthly, legal pitfalls could limit the potential of NM. Hence, the NMP demands clear and well-thought-through processes, with sufficient transparency and safeguards in the form of regulatory structures.

Source: This post is based on the article “Our export efforts hold the key to growth in the quarters ahead” published in Livemint on 3^rd  September  2021.