Exports and its relevance to India

India's exports were stagnant for the first 15 years after independence, due to general neglect of trade policy by the government of that period. Imports in the same period, due to industrialisation being nascent, consisted predominantly of machinery, raw materials and consumer goods. Until the liberalisation of 1991, India was largely and intentionally isolated from the world markets, to protect its economy and to achieve self-reliance.  Since liberalisation, the value of India's international trade has increased sharply, with the contribution of total trade in goods and services to the GDP rising from 16% in 1990–91 to 47% in 2008–10.  India accounts for 1.44% of exports and 2.12% of imports for merchandise trade and 3.34% of exports and 3.31% of imports for commercial services trade worldwide. India’s merchandise exports improved in 2013-14, although the pace of export growth was largely uneven. India’s exports grew by 4.1 per cent to US$ 312.6 billion in 2013-14 as against a decline of 1.8 per cent at US$ 300.4 billion in 2012-13 as per the data released by Reserve Bank of India. The rise in total exports in 2013-14 can primarily be attributed to the turnaround in the exports of manufactured goods, particularly, engineering goods and textile products.  

India’s merchandise imports at US$ 450.1 billion recorded a decline of 8.3 per cent in 2013-14 as compared with a marginal increase of 0.3 per cent in 2012-13.  While exchange rate adjustments and recovery in global demand may have facilitated exports, moderation in imports was primarily led by a sharp decline in imports of gold, consequent upon the various policy measures and fall in international gold prices. However the percentage share of petro-products to overall imports has risen to 36.7 %.

Since independence, India's balance of payments on its current account has been negative. Since economic liberalisation in the 1990s, precipitated by a balance of payment crisis, India's exports rose consistently covering 80.3% of its imports in 2002–03, backed by the initiatives of the NDA Government, up from 66.2% in 1990–91. India's growing oil import bill is seen as the main driver behind the large current account deficit, which rose to $118.7 billion, or 11.11% of GDP, in 2008–09.  

Indian economy has run a trade deficit every year over 2002-2012 periods, with a merchandise trade deficit of US$189 billion in 2011-12.  Its trade recovery in exports and fall in imports narrowed India’s trade deficit to US$ 137.5 billion in 2013.  CRISIL (Global Research Company) analytical note titled "Merchandise trade deficit at 18-month high" based on Trade data as of December 2014 however informs that Merchandise trade deficit  has widened to $16.9 billion in November – an 18 month high. A year ago, trade deficit was under $10 billion. The rise in trade deficit came in despite a pick-up in export growth in November and a nearly 10% decline in oil imports compared to a year ago. Export growth is likely to remain weak as lower oil prices create downside for petroleum product exports, which account for 20% of India’s overall exports.

Exports are known, and defined as the “Engine of Growth of Economy” of a country by numerous economists.  It goes back to the classical economic theories by Adam Smith and David Ricardo, who argued that international trade plays an important role in economic growth, and that there are economic gains from specialization. There are also many studies analysing the role of exports in the economic growth specifically for developing countries. Most of the recent studies conclude that there is a positive relationship between exports and economic growth. Exports of goods and services represent one of the most important sources of foreign exchange income that ease the pressure on the balance of payments and create employment opportunities. An export led growth strategy aims to provide producers with incentives to export their goods through various economic and governmental policies. It’s also aims to increase the capability of producing goods and services that are able to compete in the world market, to use advanced technology, and to provide foreign exchange needed to import capital goods. One of the key factors however is that exports promote thresholds effects due to economies of scale, increased capacity utilization, productivity gains, and greater product variety. Another advantage of export-led growth is that it allows for a better utilization of resources, which reflects the true opportunity cost of limited resources and does not discriminate against the domestic market. Exports of goods and services provide the opportunity to compete in the international markets that leads to technology transfer and improvement in managerial skills.  Exports can increase intra-industry trade, help the country to integrate in the world economy

and reduce the impact of external shocks on the domestic economy. Experiences of Asian and Latin American economies provide good examples of the importance of the export sector to economic growth and development, which led economists to stress the vital role of exports as the engine of economic growth.

          The Govt. of India had previously exempted exportable Income from Income Tax and also provided exemptions, as duty drawback and other tax exemptions. Most of these has been now been withdrawn, hence effecting exports adversely. Proper exemptions to exporting firms to promote exports just above marginal cost maintain economy of scales is the need of the hour. Marginal costs are variable costs consisting of labour and material costs, plus an estimated portion of fixed costs (such as administration overheads and selling expenses). In companies where average costs are fairly constant, marginal cost is usually equal to average cost. The increase or decrease in the total cost of a production run for making one additional unit of an item. It is computed in situations where the breakeven point has been reached: the fixed costs have already been absorbed by the already produced items and only the direct (variable) costs have to be accounted for.

The Government of India through its ministries of Commerce spends several hundreds of crores for Export promotion and development, but in practice little is done to help the exporters, to bail them out of trouble in matters of trouble arising out of Export’s financial transactions caused by Banks irregularity.  The Finance Ministry and the RBI do not take action and the cash rich Banks play with exporter's money and give them heavy financial and trade loss. This is in spite of the fact that,  as per the preambles (basic Object) of "The Reserve Bank of India Act 1934”- the Bank functions' as the Central ( regulatory) Bank of the Government of India for the keeping of reserve with a view to securing monetary stability in [ India] *  and generally to operate the currency and credit system of the country to its advantage”; ----------”. 

          Most of the acts governing the financial transactions and contract in India have become absolute and old e.g. The Negotiable Instruments Act 1881, The Contract Act 1871 etc. The Uniform Customs and Practice for Documentary Credits (UCP) which is a set of rules on the issuance and use of letters of credit, and is utilized by bankers and commercial parties in more than 175 countries in trade finance does not find place in any of the Indian Acts.  Some 11-15% of international trade utilizes letters of credit, totalling over a trillion dollars (US) each year.  Moreover Bank guarantee, Bill of lading, Bills discounting etc.  do not find place in any Indian Act. There are numerous acts governing commercial trades in India which encourages red-tape practices and delay. Most of the exporting countries have laws harmonizing trade. The Uniform Commercial Code (UCC),  which is one of a number of uniform acts that have been promulgated to harmonize the law of sales and other commercial transactions in all 50 states within the United States of America .

 On the administrative front the Govt. of India  has 23 Export promotion Councils, invariably one each for each commodity and goods and is regulated under the Ministry of Commerce. An Exporter has to get himself registered in each of this Export promotion council for the items he wants to export and has to run from office to office, pay amount to each office to get the approval for each export order secured by him, for each category of items falling under different Export promotion council. Invariably these export promotion councils are situated from one corner of the country and another on the other. Developed nations have one export promotion council and single window clearance system and help system for exporters.        

  

Previously Executive Member National Trade Cell BJP                                                     

Director Sidhartha Center for Social Development and Research