As this extraordinary year comes to an end, there is hope and apprehension surrounding the global trade ecosystem. There will be clearly two scenarios — how the world will respond after the vaccine arrives and how the export sector moves given the rise in protectionist approach globally.
The country’s foreign trade grew initially on the fundamental strengths of exports of raw materials, which evolved to the intermediate level. Another defining trend over this period has been the severe exploitation of India’s strengths of contract manufacturing in sectors that were heavily labour-intensive.
India’s exports still does not do justice to its economic growth, hovering between $300 billion and $325 billion over two decades. Merchandise exports accounted for 1.7 per cent share in global exports; in comparison, Germany, with a population 16 times smaller, has a share of 8 per cent. Even Vietnam, a developing country with a population of just around 95 million, is pretty close with a share of 1.5 per cent.
So, there is a clear need to search for new sectors and incentivise the performing sectors. The Centre has been working to address both — formulating policies for 12 new sectors is a work in progress — banking on the cluster-based approach-with plug and play facilities. Also, the Performance Linked Incentive (PLI) Scheme, announced by the government, will be a game changer.
Clearly this year some of the sectors have been doing well such as, agri and processed food, pharmaceuticals, medical and diagnostic equipment, technical textiles, plastics, chemicals and electronics. However, the demand in employment-intensive sectors like gems and jewellery, apparels, footwear, handicrafts and carpets still remains a challenge, despite anti-China sentiments. Our estimate is that exports will be close to $320 billion this year.
Suggestions to boost trade
Our recommendation to the government to help boost trade are: First, we must quickly finalise FTA with such countries or trade blocks wherein we can export value-added products and with those countries with which our trade balance is heavily skewed, as we source either raw material or intermediary products from them. CIS, Latin America, Africa, etc could be considered.
Second, higher incidence of non-tariff barriers (NTBs) with estimated costs of NTMs is 15.3 per cent largely on account of lack of harmonisation, wide differences in regulatory approaches and domestic procedural obstacles. Therefore, testing labs / facilities should be made on par globally with safe standards, so that it is accepted worldwide. Also, the clause of testing certification must be made compulsory in every FTA negotiations so that it reduces friction to trade.
Third, the government should come up with a heavy duty scheme for brand marketing globally. Indian products need to reach global shelves which is a huge cost to smaller and medium companies, largely still unaffordable. One way could be provide concessional credit to meet the high cost; or tax deduction on expenditure incurred on marketing of brands abroad, etc.
The global import of $19,053 billion is an opportunity waiting for Indian to explore in terms of export potential.
(The writer is Founder-Chairman, TPCI)