Trade Policy | Fresh sops likely as govt seeks course correction5 min read . Updated: 28 Aug 2009, 10:33 AM IST
Trade Policy | Fresh sops likely as govt seeks course correction
Trade Policy | Fresh sops likely as govt seeks course correction
New Delhi: India’s commerce ministry is expected to announce an incentive-laden trade policy for the next five years as it tries to help exporters, especially in labour-intensive businesses, explore new markets and cope with an unprecedented contraction in demand in the wake of the global economic slowdown.
The foreign trade policy will be announced today.
Commerce and industry minister Anand Sharma hinted as much when he said on Wednesday that cheaper bank loans and less red tape would help lower transaction costs for Indian exporters. The minister, who will be presenting his first trade policy, was speaking at a seminar organized by Indian Council for Research on International Economic Relations (Icrier).
“I feel that it is time that we diversify our markets to buffer the impact of this slowdown and also to take us back on high growth trajectory. Africa and Latin America afford a huge opportunity and it shall be my endeavour to intensify our economic engagement with the countries of this region," he said.
The trade policy is being presented at a time when India’s exports have been contracting for nine months in a row and world trade is projected to shrink for the first time since 1982 by around 10% in 2009.
India announced its first ever integrated foreign trade policy in 2004 with the objective of doubling its share of global merchandise trade within five years and to using trade expansion as an effective instrument of economic growth and employment generation.
According to the International Trade Statistics, 2008, of the World Trade Organization (WTO), India’s share in the global merchandise trade has increased from 0.8% in 2003 to 1.4% in 2008. India’s increasing integration with the rest of the world is also reflected in the growing trade to gross domestic product ratio that has increased from 24.4% in 2003-04 to 35.3% in 2007-08.
During the period of the first foreign trade policy (2004-2009), India’s exports grew from $83.5 billion (Rs4.07 trillion) in 2004-05 to $168.7 billion in 2008-09, with an average annual growth rate of 25%, the third fastest after Russia and China during the period.
However, with the global financial and economic meltdown, the market for Indian goods in developed countries declined significantly, and starting October, India’s merchandise exports, for the first time in five years, began to contract. As a result, India failed to achieve the target $200 billion in exports in 2008-09.
The new trade policy is also expected to give a push to efforts to explore new markets. This has gained urgency, especially since the US and Europe, the worst affected by the global meltdown, account for 40% of India’s exports. The US accounts for 16.5% and Europe, 23.8%.
“I expect some measures will be taken (in the policy) to diversify our export basket. It is because around 50% of our exports is targeted towards the developed countries. We got more adversely affected by the slump in demand in those countries. We should now focus on markets like Asean (Association of Southeast Asian Nations), Australia, South Korea as these economic zones are recovering faster than the developed countries," said Abhijit Das, deputy project coordinator, United Nations Conference on Trade and Development (Unctad) India project.
Manoj Panda, director, Centre for Economic and Social Studies said the signing of the free trade agreements (FTAs) with Asean and South Korea will also help as these are more stable markets. “But we need (to) strengthen our trade ties with emerging economies like Brazil, South Africa, Argentina."
Das said India will certainly benefit from the new trade pacts as “we will enjoy zero duty regime on a large number of items and, thus, we will have a slight edge over other exporting countries".
However, he added that exports are not an end in itself and that the emphasis of the trade policy should be on sectors that can generate jobs. “Agri exports have a higher employment multiplier than the capital extensive sectors. There is huge market potential for India’s meat products and fruits and vegetables which could be encouraged."
Other labour-intensive sectors such as textiles, gems and jewellery, handicrafts also need special attention he added.
Sharma said the policy would try and address these issues. “Tomorrow’s foreign trade policy may satisfy many...(but) may not satisfy everyone. It will be forward-looking, taking on board the concerns of the industry, particularly the labour-intensive sectors. They will get special attention."
Indian exporters employ 150 million people and their jobs were the first to be put at risk following the demand slump in traditional markets.
“The government may fine tune the existing schemes and may announce some new incentive schemes based on the existing templates. It is important for our exporters not to exit the present markets, otherwise, it would be very costly to again rebuild the same markets," Das said.
Trade facilitation is another area where experts expect some action.
“We need to fasten the process of clearance of goods at the ports. At present, exporters have to fill up several forms. The process needs to be simplified," said Panda.
Exporters say they need more.
“The destocking exercise (where retailers and importers in Europe and the US didn’t buy more as they got rid of inventory) is over. With stock now lean, foreign clients have started placing new orders. However, buyers have become price sensitive and are asking downward revision in prices by 15-20%. We need to match those prices to turn enquiries into firm orders for which government should provide short-term support and address long-term concern of the industry," said Federation of Indian Export Organizations (FIEO) president A. Sakthivel. FIEO wants the government to focus on improvement of infrastructure bottlenecks, sharp reduction in transaction cost, zero rebating of exports and more flexibility in labour laws for the export sector.
Still, there is only that much that can be done through the trade policy and administrative responses, said S. Madhavan, indirect tax leader, PricewaterhouseCoopers, India. “The slump in export demand has to do with global downturn and unless there is a revival in economic activities the government cannot do much beyond a point. I expect changes around specific schemes like export promotion of capital goods scheme, focus market scheme and focus product scheme.."
PTI contributed to this story.