FTAs aren't all the govt is doing to build robust export base

Just three states, Gujarat, Maharashtra and Tamil Nadu, do half the exports. The District as Export Hubs scheme will push others to catch up..
Just three states, Gujarat, Maharashtra and Tamil Nadu, do half the exports. The District as Export Hubs scheme will push others to catch up..


The government is quietly making laws and systems to build a robust industrial and export base.

India’s free trade agreement (FTA) with Australia would be unique. It would be our first FTA where the partner country has agreed to eliminate import duties on all products exported from India. In contrast, India will cut duties on about 70% of product lines. This speaks of the tenacity of Indian negotiators led by the commerce minister. Australian Parliament ratified the FTA on 22 November. It will soon become operational.

But negotiating FTAs is not the only ambitious agenda that the government is pursuing. It is quietly making laws and systems to build a robust industrial and export base. Here are eight key initiatives:

Enabling more firms to export: India has more than 2 million firms that produce quality products and services, but less than 100,000 of these export. Major product categories include handicrafts, jewellery, ethnic wear, decorative paintings and ayurvedic products. Considering India’s artisanal expertise, each product group can become a billion-dollar-plus category. The government is implementing its Districts as Export Hubs scheme to support them. We hope to see the number of firms doing commercial export transactions go up from an estimated 100,000 to 500,000 in three years.

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Today, just three states, Gujarat, Maharashtra and Tamil Nadu, do half the exports. The District as Export Hubs scheme will push others to catch up.

Flexible labour policies: Labour laws apply to only formal-sector workers: i.e., just 8% of all workers. Many firms have employed fewer workers to avoid complex labour law compliances. India’s four new labour codes focus on reducing the number of compliances and replacing inspector visits with online filing. The Industrial Disputes Act would apply to factories with more than 300 workers. The number was 100 earlier. When implemented by all states, the changes will nudge millions of small firms to hire more. The new labour codes will help set up many medium and large-scale units.

Support for the manufacture of high-tech products: India’s share in global exports of many high-value items is low. Consider our export shares in these product categories: Machinery 0.9%, electronics 0.4%, integrated circuits 0.03%, computers 0.04%, solar cells 0.3%, and LED TV sets 0.02%. The Indian government has introduced production-linked incentive (PLI) schemes in 15 product sectors to make India a major production centre for these products. As firms enter production mode, we expect to see a jump in Indian exports from next year onwards.

Enhanced efficiency of commercial courts: Court delays in settling commercial disputes stunt industrial growth. The example of Indian textiles is revealing. Till the late 1980s, India and China were exporting less than $5 billion of textiles and apparel. Later, as the global market expanded, buyers demanded timely supplies of agreed-quality products. The system worked through a series of contracts between buying and sourcing agents that acted as links between buyers and sellers. Due to India’s weak contract-enforcement system, this agent system could not develop adequately, leading to a loss of connection with buyers. The system in China worked relatively fine.

Today, China’s textiles and apparel exports are $320 billion, while India struggles at $40 billion. Weak contract enforcement is a crucial reason for most woes of the Indian textile industry. This example applies to most other sectors too.

The government has made several interventions, from introducing new laws to automating courts, with visible results. The time taken to settle a case has come down from 1,445 days in 2019 to 700 in commercial courts in Mumbai and Delhi. Work is on to improve this further.

The introduction of WTO-compatible export schemes: The government has abolished export schemes that are not compatible with rules of the World Trade Organization (WTO). The most important one was the Merchandise Exports from India Scheme, which distributed over 40,000 crore annually to over 40,000 firms; it was discontinued in 2020. In its place, the government introduced the Remission of Duties and Taxes on Export Products (RODTEP) and Rebate of State and Central Taxes and Levies (ROSCTL) schemes, which are WTO compatible. Exporters can use these without fearing retaliatory action in destination countries.

Improved product quality through regulation: Many Indian products fail quality tests due to traces of pesticides, pathogens, illegal dyes, etc. India needed to redesign its quality assurance framework to help firms reach higher standards and protect the country from substandard imports. The government has issued Quality Control Orders (QCOs) and Technical Regulations (TRs) for electronics, safety glasses, toys, microwaves, tyres, LCDs, CFLs, etc. Quality consciousness will help Indian products match global standards and succeed overseas.

Service sector diversification: The information technology (and IT-enabled services) sector dominates India’s service exports. The government is working to diversify exports through a push in 12 service sectors under its Champion Services Sector initiative. Important new thrust sectors are tourism and hospitality, medical value travel, audio-visual, legal, communication, construction and related engineering, environmental, financial and education services.

Activation of Indian trade missions abroad: The government has taken steps to energize Indian missions abroad to promote trade, tourism, technology and investment so as to achieve our national goals. These overseas missions have been tasked to promote India’s exports in the respective countries, alert export promotion councils/exporters to opportunities for the export of specific goods and services, and facilitate buyer-seller engagement.

The world economy is slowing down right now, with adverse consequences for global import demand. The finest way for us to push exports in such times is by focusing on fundamentals. The measures outlined above concentrate on just that. They will help create jobs, increase exports, reduce imports and widen India’s economic base.

Ajay Srivastava is a former Indian Trade Services officer who writes on technology and trade issues.

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