Relevance: GS-3: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment; Effects of liberalization on the economy, changes in industrial policy and their effects on industrial growth.

Key Phrases: Merchandise exports, $400 billion plus exports, China+1 procurement strategy, Low base effect, World Trade Organisation (WTO), Productivity-Linked Incentive (PLI), Indian Cellular and Electronics Association (ICEA).

Why in News?

• Recently, India's merchandise exports at $418 billion is highest ever and after 14 long years, the target set by the government has been exceeded.
• Services export too is at a historic high of $250 billion.
• In many sectors, the China+1 procurement strategy by global players is beginning to translate into orders for Indian manufacturers.

What are the hurdles in exports envisaged in the Editorial?

• Last fiscal India’s exports grew by a strong 43 percent for two reasons.
  • Low base effect (FY21 exports took a beating due to the pandemic)
  • Developed economies pushed through massive stimulus to its citizens to keep the economy moving. This translated into strong global demand (including a lot of pent-up buying).
• Pandemic Disruptions:
  1. The stimulus and supply-chain disruptions due to the pandemic started pushing the inflation up which has been further accentuated by the Russian invasion of Ukraine.
  2. Most economies are tightening their monetary policy and raising interest rates in a bid to tame the run-away prices. These developments are slowing global trade and economic growth.
• Poor growth projection:
  1. The World Trade Organisation (WTO) reported that global trade in 2022 will grow by just 3 per cent as against 4.7 per cent it had projected earlier.
  2. WTO has also pegged world GDP growth at 2.8 percent in 2022. In the previous year the world economy grew by a robust 5.7 per cent (this fuelled India’s exports in FY22).
  3. WTO economists have blamed the Ukraine crisis and Covid-related lockdown in China for their downward revision of estimates. Under these circumstances, India must do exceedingly well to even maintain its merchandise exports at FY22 level.
• Price inflation in many commodities:
  1. Commodity price inflation has contributed to India's export of goods in FY22.
  2. Take petroleum products. Its exports value has gone up 152 per cent which is far sharper than the volume growth.
  3. Same with engineering products (iron, steel and copper prices have shot up too). In fact, it is a global phenomenon.
  4. According to WTO data, the volume of merchandise exports rose by 9.8 per cent across the world in 2022. Once the commodity prices cool, export value too will reduce.
• Protectionist clouds:
  1. The bigger challenge is the protectionism that is taking hold in India and the rest of the world.
  2. Since 2014 India has raised tariff on 3,200 items. Though the average tariff has dropped to 15 per cent in 2020 from 17.9 per cent in 2019, it is still considered to be amongst the highest in the world.
  3. Higher tariffs while protecting the domestic industry will also make exports uncompetitive where the product has a good share of imported components.
  4. A study by India Cellular and Electronics Association (ICEA) on electronic components:
  • Across 120 tariff lines and four major competing nations China, Thailand, Mexico and Vietnam, revealed that India’s import duties make exporting handsets uncompetitive.
  • India has just 32 components on zero duty compared to China (53) and Mexico (74).
  • This has been hampering the export potential of India in Mobile export.

What are the various measures taken by the Government to sustain export growth?

1. Signing Free Trade Agreements:
   • The Central government, after a gap of many years, has started signing free trade agreements (FTAs), first with the UAE and then with Australia.
2. Productivity-Linked Incentive (PLI) Schemes are getting implemented and if they are administered properly, they can give a strong fillip to exports.
3. Ambitious Target to induce investors:
   • The Union Industry and Commerce Minister Piyush Goyal has called for exports to touch $2 trillion by 2027 ($1 trillion each for merchandise and services exports).
   • To achieve this target, export of goods should more than double while that of services should quadruple in the next five years.
   • If India’s past performance is considered, achieving this looks far-fetched unless significant corrective actions are taken.
4. While the investors incentives scheme will help India meet its domestic needs, high tariffs will prevent them from investing fully. Thus, further remedial measures in the form of Ease of doing businesses are needed to be taken.
5. As regards services exports, India has the potential to grow it many times.
   • What is needed is a clear vision to leverage India’s IT capabilities in areas such as consultancy, accountancy, legal and healthcare.
   • There is a need to tighten regulations when it comes to privacy and data security.
   • Being a democracy, India has a natural advantage over China or other autocratic nations in knowledge economy-based service exports as long as it is seen as respecting the rule of law.
6. Reduce the import tariffs for industries:
   • As economist Arvind Panagariya said that India could not not be an export powerhouse without being open on the import side.

Conclusion:

• India needs to effectively break away from the marginal rate of growth in exports, which is a prerequisite to achieve $2 trillion exports by 2027.
• There is a need to get on a mission mode and remove all impediments without falling prey to various domestic interest groups. If that happens, India’s exports will continue to thrive and it will finally enter a sustained high economic growth phase.
• Signing two FTAs in a matter of weeks is a welcome move. But India, to really boost its exports, must have these arrangements with its leading trade partners such as the US, UK or EU. FTAs with UAE and Australia should hopefully set the stage for more to come.

Source: The Hindu BL

Mains Question:

Q. There is a need to create an open ecosystem where the exporters and industrialists enjoy the freedom of choice relating to the exports and purchase of imports. How far do you think measures like Free Trade Agreements can be a good start in this direction? (10 marks).