Export based on world demand, not domestic supply: Govt

Posted by Daily Shipping Times on 15-03-2017        Tweet

NEW DELHI: India needs to rethink on which export items it should focus, says a report authored by a senior advisor in the Finance Ministry.  “In 2015, India’s export share in the top 100 world import items at four-digit HS level were more than five per cent in only five items,” says the report. In Value terms, only 1.6 per cent.

These include petroleum oils, diamonds and jewellery, sensitive to small price rises in the production or distribution phases.

“Similar is the case in different important markets like the US, EU, Japan, etc. Our focus (has been) on exporting what we can (or supply-based). We have to shift to items for which there is world demand and we also have basic competence,” says the report.

Rising for a fifth straight month, merchandise exports grew by 4.3 per cent in January, after a 5.7 per cent rise in December. Exports were $22.1 billion, after reaching a 21-month high in absolute terms in December to $23.9 bn. Before the rise, outbound trade had fallen for 21 continuous months. “We are expected to reach around $270 billion this fiscal,” says S C Ralhan, President, Federation of Indian Export Organisations. Experts, however, advise caution.

Rising protectionist measures globally had resulted in international trade growth estimates by the World Trade Organisation falling to a range of 1.8-3 per cent for 2017. Earlier, it had revised its estimate for growth in 2016 to 1.7 per cent, slowest since the financial crisis of 2009.

India’s share in world exports is miniscule, at 1.6 per cent in 2015; China’s was 13.8 per cent. The report targets a five per cent share in the medium term. “For this, exports should reach $882 bn by 2020, which means the export growth rate needs to be around 27 per cent compounded annually (CAGR) in the five years (2016-2020), assuming global growth continues at the present CAGR of 1.5 per cent (2010-15).”

India had achieved growth rates higher than this in 2004-05 (30.8 per cent) and in 2010-11 (40.5 per cent), it recalls.

On this note, the report still makes a pitch for reducing of tariffs.

“With the present global situation it might not look like the right time to suggest this (but) a lot of rationalisation can be done. India’s average MFN (non-discriminatory)-applied tariffs are relatively higher than other emerging economies and particularly all the BRICS economies except Brazil. India’s bound tariffs are higher than all these countries,” it says.

Also, it asks the Government to look at streamlining of export promotion schemes in the wake of the goods and services tax (GST) regime coming into action. GST will replace many current taxes linked to imports.

The duty drawback schedule needs to be reworked, as it will be mainly basic customs duty which needs to be rebated; GST has an input tax credit system. Although exports would be zero-rated, promotion schemes would also have to be reformulated. “For example, with the lowering of duties for capital goods over the years, the relevance of the EPCG scheme has become less,” it says.