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
