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Budget 2020 | FM should re-prioritise spending to lift exports

Date: 23-01-2020
Subject: Budget 2020 | FM should re-prioritise spending to lift exports
Biswajit Dhar

After recording reasonable growth over the past two financial years, India’s exports are facing a reversal in fortunes. With the December 2019 figures, it’s clear that the outbound shipments have been in the negative territory for the past five months.

In the first nine months of 2019-20, exports were 2.1 percent lower than the same period in 2018-19. These trends show that the figure would not be significantly higher than $300 billion in 2019-20, a level last seen in 2011-12.

The usual response of the government to boost exports is to provide an additional does of export incentives. This is what the Union Finance Minister Nirmala Sitharaman did in August 2019 when she announced a slew of measures. A new export incentive scheme, Remission of Duties or Taxes on Export Product (RoDTEP), was announced to replace the Merchandise Exports from India Scheme (MEIS).

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The minister had indicated then that the revenue forgone for implementing the scheme would be to the tune of Rs 50,000 crore. While announcing the programme, the government had said this would “more than adequately incentivise exporters than the existing schemes put together”. Clearly, the RoDTEP has belied expectations.

There are at least two reasons why the FM should think of re-prioritising her spending to boost exports. The first is that tight revenue position may limit her ability to generously dole out export sops. Until a couple of years ago, these incentives stood at an average Rs 50,000 crore, which are expected to move up after the government’s latest push.

Second, the constraints imposed by the rules laid down by the World Trade Organization (WTO) merit a look. India was barred from using such supportive tools, courtesy the Agreement on Subsidies and Countervailing Measures (ASCM), after the per capita GNP exceeded $1,000. However, it continued its use of subsides such as the Merchandise Exports from India Scheme (MEIS), arguing that the ASCM allowed a transition of eight years to developing countries to do away with export subsidies. That prompted the US to take the matter to the WTO, challenging almost all the schemes India uses for incentivising exports.

While the government can safely provide export incentives without worrying much about the WTO for the reasons stated above, there is a need for an in-depth assessment as to whether export promotion schemes are justified. This is imperative in view of the fact that such sops have been in place for a very long time, but the export performance still is a major area of concern.

The FM needs to adopt a fresh approach to add dynamism to export growth though her Budget. There are at least three areas she could focus on.

The first is an area she has already spoken about, namely, compliance with product/process standards. Market access barriers have shifted from the conventional instrument of tariffs to standards compliance, and this has hurt Indian exporters. The inability of domestic producers to meet the exacting standards in the international markets is a well-established fact.

Sitharaman has proposed a road map for adoption and enforcement of such standards, which seems to be the way forward. It may, however, be pointed out that the issue of standards has been discussed by the Department of Commerce on several occasions in the past. The critical issue now is to examine the non-implementation of the past recommendations, in particular the institutional and other bottlenecks.

The standards must be enforced in every sector and, therefore, the FM’s focus on only the engineering sector is somewhat inadequate. More so because exports of agricultural and agro-processed products are among the worst performing in terms of standards compliance. Late last year, the government announced the Agriculture Export Policy where it admitted that the country was unable to export its vast horticultural produce due to lack of uniformity in quality and standardization, among others.

India’s potential in improving its exports of agricultural products has long been recognised. Critical support from the government will help realise this potential.

The second focus should be on improving performance of ports to reduce transaction cost, which has been on the agenda of successive governments for at least two decades. The critical aspect here is investments for port modernisation, including the timely implementation of the Sagarmala project. Once executed, the exports business will get the intended boost.

The third is to make effective and efficient use the Special Economic Zones (SEZs) by providing “world-class infrastructure” as was proposed in the SEZ policy of 2000. The Baba Kalyani Committee set up to review the SEZs policy made useful recommendations in its report submitted in 2018. Sitharaman could consider setting aside more resources for implementing some of these recommendations.

Source: moneycontrol.com

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