Place Indian exports on a sustained growth path
Over the past few months, India’s export prospects have sparked great optimism, with Trade Minister Piyush Goyal setting a target of $ 400 billion for fiscal year 22. If achieved, that target would exceed by more than 21% the highest level of exports ever reached by the country, of 330 billion dollars in 2018-2019. There are good reasons to be optimistic; exports topped $ 163 billion for the first five months (April-August) of the current fiscal year, almost 23% above the level reached during the corresponding period in 2019-20, the year “Normal” before the Covid-19 pandemic. But, more importantly, April-August 2020-21 saw a level of exports never seen in the past.
India’s exports have jumped on the back of the steady recovery of the global economy, especially in the country’s top export destinations. The United States and China, the top two export destinations, rose 6.6% and 8%, respectively, in the second quarter of 2021. But in the current quarter, headwinds could develop as China is expected to grow 2.5%. Indian exporters must overcome these uncertainties to maintain the exceptional export growth recorded in the first half of 2021.
The government assisted exporters by notifying the new export promotion program, remission of duties and taxes on exported products (RoDTEP). Announced over a year ago, RoDTEP replaced the Merchandise Exports from India Scheme (MEIS) – discontinued in December 2020. The objective of RoDTEP is to reimburse the still unreimbursed taxes and levies imposed on a product exported to central, state level. and local levels, including cumulative indirect taxes at the previous stage on goods and services used in its production, as well as all taxes and duties imposed on its distribution.
Compared to RoDTEP, MEIS was a very ambitious program. Introduced in the 2015-2020 foreign trade policy, the MEIS was to “compensate for inefficiencies in infrastructure and costs associated with the export of goods … in particular those with high export intensity, employment potential and thus improving the competitiveness of India’s exports ”. Under MEIS, incentives were issued in the form of rights certificates to be used for the payment of several duties by exporters. However, two sets of constraints led to the decision to abandon MEIS.
First, following a complaint by the United States against India’s export promotion programs, including MEIS, a WTO dispute settlement panel ruled against in 2019. The panel ruled that these programs violated WTO rules on subsidies since they were designed. solely for the purpose of improving export performance.
The second problem with MEIS was highlighted by the government and justified in the CAG reports. The revenue department, along with NITI Aayog, found the program ineffective because it did not improve India’s export prospects. In the five years of MEIS’s establishment, revenue lost due to it was nearly 1,32,000 crore, but exports remained sluggish except in 2018-19.
In its performance audit of MEIS carried out for the fiscal year ended in March 2019, the CAG raised several systemic issues related to its implementation.
Among the most important issues raised were the discrepancies between the value of the MEIS certificate and the right in rem according to the shipping invoices. The report pointed out that delays in updating the system resulted in incorrect adoption of exchange rates. There have been instances of over-granting of MEIS Duty Credit Certificates due to misclassification of goods, leading to demand for higher rates and inclusion of ineligible products. The CAG therefore provided evidence to support the government’s view that MEIS was not effective in achieving results in the form of increased exports.
There is, however, a larger problem, which goes beyond the implementation of MEIS, and which concerns the effectiveness of export promotion programs in general. Government data shows that revenue lost due to export promotion concessions since 2014-15 was over 4,45,000 crore. During this period, the average level of exports was lower than the psychological figure of 300 billion euros. The main reasons for this indifferent performance of exports, which was admitted by the government when announcing the MEIS, were “the inefficiencies of the infrastructures and the associated costs”. If India’s exports are to be placed on a sustained growth path, it is imperative that this area receive the proper attention from the government.
The efficiency of India’s trade-related infrastructure remains relatively low, despite the improvements recorded over the past decade. Consider, for example, the turnaround time of ships in ports, which is an indicator of how efficiently ports can handle cargo. In 2020, the average turnaround time for Indian ports was 2.62 days, while the global average in 2019 was 0.97 days. In addition, the maximum size of vessels that can enter Indian ports in 2019 was nearly 1,554,000 gross tonnes, compared to a global average of nearly 219,000 gross tonnes, reflecting the economies of scale that await d ‘be exploited. Thus, closing the gap in port efficiency can significantly reduce the cost of doing business, thereby giving Indian exports a competitive advantage.
The objective of the new foreign trade policy should therefore be obvious: the government must invest and promote investments in transport and logistics, rather than relying on ad hoc export promotion measures, which have no failed to promote Indian exports.
Professor, Center for Economic and Planning Studies, School of Social Sciences, JNU