People And Their Problems

 New Delhi, 27 January 2007

Dynamic Growth

New Policy To Invigorate Exports

By Dhurjati Mukherjee

The assumption of creating 20 lakh jobs that is, direct employment each year is indeed quite difficult to achieve though the prospects of India emerging as a global hub for jewellery and auto parts and increased service exports could greatly help. The export growth has been around 20 per cent during the last few years and in the last year the target of $ 92 billion has been surpassed, reaching $ 101 billion against $ 80 billion in 2004-05, marking a 25 per cent jump. It may be mentioned here that in 2004-05 exports had surpassed the $ 75 billion target, and last year also the Commerce Minister was expecting to cross the target and reach the $ 100 billion mark.

The focus areas for boosting export revenues and job creation would obviously be in the areas of agricultural products, auto parts, pharmaceuticals and gems and jewellery. But as the Commerce Minister stated “in order to tap new opportunities arising out of the boom in the aviation sector, food beverages and other supplies including refueling of long distance flights would be treated at par with other exports, making them eligible for benefits under various export promotion schemes”. It may be mentioned here under the earlier scheme lot of incentives was given to the marine sector.

Two new schemes were announced to give additional impetus to penetration of strategic markets. The Focus Product Scheme is expected to give a thrust to manufacture and export of certain industrial products which could generate employment per unit investment compared to other products. The other scheme Focus Market Scheme would penetrate markets to which India’s exports have been comparatively lower and which Indian exporters had been neglecting due to high freight costs and underdeveloped networks but which were markets of the future. The two schemes may entail revenue outgo of about Rs 2500 crores. These two schemes would replace the Target Plus Scheme which was announced in 2004-05.

It is also significant that the earlier Vishesh Krishi Upaj Yojna will now include village and cottage industries. There has been a demand to help the somewhat ailing these industries and help market their products and the present step has been in the right direction. However, the scheme has been renamed Vishesh Krishi Upai Aur Gram Udyog Yojana and would provide incentives to products of cottage and village industries by awarding a duty-free scrip at the rate of 5 per cent of FOB value under the expanded scheme.

Meanwhile, a report developed by McKinsey and the Confederation of Indian Industry (CII) has predicted that India can garner nearly $ 300 billion in manufacturing exports by the year 2015.

The country’s share in world manufacturing exports is expected to rise to 3.5 per cent. Around 25-30 million jobs are expected to be created in the manufacturing sector and another 60-90 million in allied activities like construction, entertainment etc., the study pointed out.

The post-MFA opportunities in textiles besides myriad, labour-intensive, low-end product segments are expected to facilitate Indian industry to look for exponential growth though China and Bangladesh, which enjoys a preferential treatment under agreements such as ABA (anything but arms) pose stiff competition. Global trade in apparel could rise to $ 300 billion from the present $ 200 billion. India could grow its share by 8 to 10 per cent to $ 25-30 billion from the present $ 6 billion, the study projected. The country’s chemical, engineering and cost-innovative skills could also make it one of the top low-cost countries. Competition, however, is expected to be tough in electricals and electronic products from countries like China, Taiwan and Malaysia who have a significant lead in the $ 1 trillion world trade.

Citing China’s example, Rajat Bhargava (who presented a report at a recent CII seminar) said clusters in the form of special economic zones with special economic systems are a key feature of that country’s success in manufacturing. In India, a lot more needs to be done before the SEZs can be considered world class, he added. However the government to boost SEZs has allowed 100 per cent foreign direct investment through the automatic route for manufacturing units located in the zones. Duty-free import of goods for the development, operation and maintenance of SEZs has been permitted and various tax exemptions have been extended to them. The government has also given its approval for setting up another 33 SEZs apart from the already existing 11.

There can be no denying that the barriers to expedite exports are being given due attention by the government. These are expected to stimulate domestic demand by reducing indirect taxes and import duties, de-bottlenecking ports and accelerating power reforms, encouraging the development of manufacturing sectors and hastening labour reforms and facilitating skill development. In fact, the emphasis on improving infrastructure would have a positive effect in boosting up exports in the coming years.

That there is an urgent need to shift focus from primary exports to that of value-added products has been admitted. This would enable the country to earn more through exports while also encouraging domestic industry. It may be mentioned in this connection that Indian steel firms have long been up in arms against export of high-grade iron ore to Japan and China as these were scarce material, which needed to be conserved for use by the domestic industry. Thus value-added exports which are cost effective and meet global standards have to be encouraged to gain acceptability in the international market.

There has been a trend in recent years to intensify trade with India’s neighbours and this has been showing a positive sign. According to the International Monetary Fund (IMF), India’s trade with Asian countries is all set to leapfrog in the coming years. “Much of India’s recent export growth has been fuelled by trade with Asia, in particular China, where India has managed to more than double its market share”, the IMF Director (Asia-Pacific), David Burton said recently. Burton projected, and quite rightly, that greater trade liberalization and regional integration are key to realizing India’s potential and benefiting from greater integration into the regional economy.

It may be pertinent here to mention that the Prime Minister recently announced that the country was trying to form a pan-Asian free trade area with the help from China and Japan. “This pan-Asian FTA could be the future of Asia and will, I am certain, open up new growth avenues for our economy”, Dr. Singh pointed out. Both Burton and the ADB President, Haruhiko Kuroda, have also stressed the need for greater regional integration and strengthening of an Asian economic community (offering complimentary markets for the benefit of its members) as these steps would greatly realize India’s potential in boosting up trade.    

However, infrastructure development remains a key question. Take the case of our exports to Bangladesh. A report of the Asian Institute of Transport Development (AITD) has pointed out that modernization of the existing ill-equipped border crossings and archaic procedures could reduce the cost of Indian exports to that country by as much as 10 per cent. Container traffic from northern India still go around by sea through Mumbai and Singapore and is then carried by feeder lines to Chittagong. AITD has estimated that a container traveling overland from Ludhiana would cost around $ 650 instead of $ 1600.

India could play a crucial role in boosting up export growth in the Asian region in the coming years. Even with Pakistan a Joint Business Council has been set up to intensify trade and economic ties as agreed by the Prime Ministers of the two countries. However, infrastructure facilities, specially road routes with the neighbouring countries, have to be improved, on the one hand, and export finance made available in a hassle-free manner to the exporting countries, on the other.

According to a study titled ‘Towards an Employment-Oriented Export Strategy: Some Preliminary Explorations’ by the Research & Information System for Developing Countries (RIS), there are a number of opportunities for expanding exports as well as employment that remain unexploited. “ If we can focus on exploiting these opportunities, it will not only be possible to surpass the $ 150 billion target for exports set by the Government for 2009-10” which would also generate more jobs for India’s youth, it observed.

For the country to emerge as a serious contender or at least a major regional hub for aviation, gems and jewellery and other high potential sectors like textiles and leather, a whole panoply of infrastructural, fiscal and regulatory environment and facilities conducive for growth for large players to move in needs to be created. The possibilities that the country presents are indeed immense and if regional trade could be further strengthened export growth would be greatly enhanced by the end of the present decade.---INFA

 (Copyright, India News and Feature Alliance)