What it’ll take to achieve goods exports of $400 billion?

Source: Livemint

Relevance: Doubling India’s exports

Synopsis: The blueprint for doubling India’s exports has already been crafted 10 years ago. It needs to be adapted to the modern times by incorporating suitable changes. A brief look at some factors that merit attention.

Context

India has set a target of merchandise exports of $450 billion in a couple of years.

Also, as per the commerce secretary, the present fiscal year’s exports are growing between 25% and 30%, which is ahead of target. And to boost exports, a strategy paper to double exports in three years had been prepared by the ministry.

Opportunities present before India

1. The world economy, led by two of its largest economies, the US and China, is booming.
2. These two economies make up nearly 40% of global GDP, and they will clock an average growth of 5% over the next two years. That is the equivalent of India’s economy growing at 50%.
3. Booming international trade will result in high commodity prices, increased freight charges, container and ship shortages, and overflowing order books.
4. The run-rate of exports in the first three months of this fiscal indicates that a $400 billion target is achievable.
5. Economic diplomacy will serve the cause of energizing exports.

Key factors to consider

1. First, along with free trade agreements, tax and trade reforms, decrease in transaction costs are also necessary. For example, India’s biggest trade partner is the US, with which we do not have an FTA. An FTA is not a prerequisite to keep export engine running. Almost three-fourths of India’s exports are outside the ambit of FTAs. So, trade and investment treaties with the EU, Australia, Canada and the US should not hamper export growth.
2. Secondly, nearly 80% of our exports are from only 21 chapters of the Harmonised System (HS) of codes for classifying goods. The remaining chapters lie underused, which need focused attention to double exports.
3. Thirdly, India needs to ensure that initiatives like Atmanirbhar Bharat or production-linked incentives (PLIs) do not result in protectionism.
4. Fourthly, export incentives must be generous enough to negate the effect of domestic taxation.
5. Fifth, the embrace of global value chains means that our exports will have significant import content. Hence, tariff barriers for imports have to be modest. Otherwise, it will result in delays and cumbersome processes.
6. That is why tariffs should be modest and let exporters focus on enhancing their competitiveness.
7. Sixth, another aspect is the rupee’s exchange rate. For exports, a slight bias towards an undervalued currency is preferable. India has a current account deficit, so it should not fear being labelled a ‘currency manipulator’.
8. Last, access to global markets for small enterprises. Omnipresent global e-commerce players should be the way for this, where a buyer in remote Alaska can click on an item to be shipped from Coimbatore.

Terms to know

• HS Codes