Augmenting Share of India’s Exports in the International Market

Background:Our exports sector has been an important contributor in the economic activity and through the sustained efforts of the Ministry of Commerce & Industry in the past several years our exports have been showing a very impressive growth.
However, over the past threeyears it has become increasingly apparent that the uncertainty in the global marketplace has worked its way to impact the export and import transactions of our country on account of weak demand conditions prevailing in the major trading partners like US, Europe and Japan.  Items manufactured by labour intensive sectors such as gems and jewellery, textiles, handicrafts, handlooms, leather, marine products, sports goods etc have been most affected.
No doubt, the mild recovery in the advanced economies and a turnaround in global demand have provided a fillip to export growth in FY14. According to recent data, exports stood at US$ 313 billion in 2013-14, up by 3.9% as compared to a decline of 1.8% during 2012-13. Yet our exports have fallen short of the export target of US$ 325 billion for the year. Going forward export revival would remain one of the key drivers of growth in 2014-15.
However, while the global economy is showing moderate signs of improvement, the recovery is not sufficient to drive a sustained global rebound. As per WTO’s International Statistics 2012, India is the 19^th largest exporter with a share of 1.7% in worldwide merchandise exports. In services, we come in at 8^th rank with a share of 3.3%. In imports, India ranked 12^th for goods and 7^th for services in 2011, accounting for 2.5% of world merchandise imports and 3.1% of services imports.
Direction and Composition of India’s Exports
The composition and direction of India’s of India’s exports has undergone a shift over the last decade. The table below provides the details.
Region wise Growth in Exports( US$ million)

India’s export destinations have undergone shift lately. Traditional export markets of advanced regions in Europe and USA which accounted for over half of India’s exports in 2001-02,have come down tin 2012-14.The space so vacated has largely gone to Asia which now contributes to over half of Indian exports.
This is largely due to doubling of shares of ASEAN and West Asia-GCC. Exports to ASEAN went up from $2.9 billion in 2001-02 to $37 billion in 2011-12 before coming down to US$ 33 billion in 2013-14. Exports to West Asia-GCC similarly shot up from $3.9 billion in 2001-02 to $528 billion in 2012-13, a rise of 13 times before declining to US$48 billion in 2013-14.Significant gains are also evidenced in our trade with North East Asia with exports rising form US$ 6 billion to US$ 4 billion between 2001012 and 2013-14 .China market too has proved to be resurgent, as exports to China went up from $0.8 billion to $18 billion in 2011-12, but came down to $13.5 billion in 2012-13. Its presence in India’s export markets expanded from 1.9% to 4.5% in this period.The share of SAARC countries has not benefited from this export surge towards Asia and remains below 5%.The share of CIS and Baltics has come down by half, although value has trebled in this period.The performance of markets in Africa has been good as exports in value went up by a factor of 12 and they account for almost 10% of India’s exports.The analysis indicates that India must continue to diversify its exports. At the same time, it must not yield further share in Europe and USA to other suppliers, but energetically attempt to move up the value chain. China would hold a special place in India’s exports given that the trade imbalance is high and unsustainable.In terms of commodities, it is unfortunate that given the range of manufactured items in India, the share of the top five segments accounts for almost 80% of exports. Exports have become more concentrated since 2005—06, when the top five products had a share of two-thirds of the total.

Problems faced Indian exporters and suggestions for recovery.
No doubt external factors have contributed significantly to our export decline.  Yet it is also true that there are domestic constraints which prevent our exports from realizing their full potential.  Some of the constraints which come in the way of improving our share in world exports and impede export competitiveness are mentioned below:
High cost of finance

The cost of export credit in India is in the range of 11% and 12%, and this is much higher in comparison to competing countries in South East Asia, where it is around 5-6%. The high cost of credit becomes especially detrimental for our export competitiveness which becomes apparent in times of slowdown. Exporters also contend that banks are encouraging their clients to avail overdraft facilities rather than avail packing credit
High procedural transactions cost of operation
The high procedural transactions cost of operation which is 5-10% higher than our competitors, reduces the margins to the exporters and dampens the incentives to export. Each and every compliance has a cost attributed to it which affects our export competitiveness.The high transactions cost severely affects the country’s exports.
Un-rebated taxes and duties:
Unrebated taxes and levies, which amount to 4-6% of the export value, increase the production costs of exports and impede our competitiveness in the international market place.Pending claims of refund of service tax, drawback, rebate claims and VAT are affecting exports. .Exporters also face difficulties with the States are not refunding taxes paid by exporters.
Inadequacy of export infrastructure
Inadequate infrastructure such as roads, railways and ports, and lack of co-ordination among the related agencies are also severely hampering India’s exports.
Suggestions to Boost Export Competitiveness
Against this backdrop, it is imperative to initiate policies and programmes which would provide a boost to our export competitiveness and improve India’s share in the export market.
To boost exports, it is necessary to support domestic manufacturing sector, encourage SEZs, and set up an India Trade and Investment Promotion body with overseas offices. Labor laws are not very conducive for manufacturing and it should be amended. India should connect its manufacturing to regional and global supply chains too.
The government policies and key reforms have, doubtless, played a supportive role in the past with beneficial results.  This process has to be carried further.  The unfinished agenda needs to be addressed, especially in the area of  infrastructure, taxation,labour and skills, among others  in order that the major domestic and foreign players believe and are convinced that the government is serious about reducing transaction costs which would eventually make investing in exports a viable business proposition.  Only then would the Made in India brand emerge as the next big manufacturing export story.
Reduce Cost of Export Credit
There is need to provide cheap credit and reduced interest ratesfor all export sectors. In fact, export credit should be at a rate closer to LIBOR rate so that competitiveness of the country’s exports increases.  Apart from reasonable interest rates for export credit, it is equally essential that adequate and timely credit is available to exporters. The government must also address the problem faced by smaller exporters in getting export credit.
Exporters look forward to a reduction of interest rate on rupee packing credit, which is currently between 10-11%, by a minimum of 5%. There is need to make available of dollar line of credit for import intensive exports, reduce interest rate on pre-shipment credit and expand insurance cover for exports.
Use of external commercial borrowings (ECB) should be allowed to exporters for meeting their requirement of pre- shipment credit. Export Earners Foreign Currency (EEFC) Account, which is presently non-interest bearing, should offer the facility whereby such deposits earn interest.
Widen the Scope of Interest Subvention Scheme
The existing scheme of interest subvention on Rupee export credit caters to a few employment oriented sectors. There is a need to widen the scope of subvention to ensure larger exporter segment derive benefit from the Scheme. There is need to include additional sectors, such as electronics and all engineering goods, automotive sector; and all exports originating from DTA units to SEZs; besides redefining the SMEs with higher investment/turnover criteria, to enhance the scope and eligibility of the Scheme
Encourage Value Addition and diversification of export markets:
We continue to retain our image of a being an overseas supplier of bulk and traditional products.  These are not only unreliable and unsustainable because of fluctuating global prices and large domestic demand but also cater to the low end of the market where unit price realization is low and competition is intense. There is need to encourage and incentivize value addition in exports and encourage diversification to new markets so as to integrate with rapidly growing emerging economies, becoming supplier of choice.
Preferential treatment should be offered to key labour-intensive sectors in which India has a comparative advantage.  Focus should be on sectors like leather, made-up textile articles, crocheted apparel, toys, footwear, electronics etc.Support high-technology sectors for greater value addition and target green products.It is important to focus on new and emerging countries in Africa and Latin America, ASEAN & East Asia.Become a more active player in important fora like G-20, BRICS (Brazil, Russia, India, China and South Africa) IBSA (India, Brazil, South Africa) and increase private sector engagement with these countries/blocks.

Reduce transaction costs of exports

It is important that the government effects simplification of procedures to reduce transaction costs. There is need to examine the supply chain to identify and weed out extra costs. Reduction in transaction cost for exports would improve ease of business and competitiveness of the Indian exports.
For effecting a reduction in transactions cost, there is need for providing custom clearance and port loading facilities round the clock for all days in the year. No Entry Exemption facility should be provided to the vehicles carrying Export Cargo to cut down the lead time.
Some of the other measures to reduce transactions costs include facilitating effective and complete automation of the export process across various agencies and encouraging use EDI platform and on line transactions including on-line portal. Besides, effect Procedural rationalization. Self-certification and speedy clearances are required.

Effecting Improvement in infrastructure Indian trade is burdened with 14-15% logistics cost as against 7-8% in the developed countries which erodes the competitiveness of Indian exports in the international markets. To overcome the problem, it is essential to develop export hubs in a strategic manner, integrating manufacturing (NIMZ), connectivity, testing and lab facilities etc.Improving port infrastructure is particularly important as there are few docks to handle mother ships. At present, a majority of international trade flows through major ports because of better road and rail connectivity leading to congestion at ports. Hence, building capacity at major port should be the primary concern of the Indian government. This should be accompanied by improving the rail and road connectivity to minor ports so that exporters find it convenient to make use to an increase in capacity at minor ports. There is also need to complete conversion of manual ports to Electronic Data Interchange (EDI) Ports

Providing full refund of all indirect taxes and levies:
Besides, there are a number of State level taxes that add to the cost of export product.  These should not be made applicable for exports. To reduce the adverse impact of unrebated taxes on exports, it is suggested that duty draw-back be increased by 5%, excluding service tax.
Institute a simple procedure for refund and allow all taxes including CST, CENVAT and local VAT on petroleum, octroi and entry tax to be refunded. Interest amount for the period of delay should automatically be credit to the account of the exporter. Also periodic training sessions may be conducted in different Zones as excise officers are not familiar with the provisions related to drawback.
Treat Exports as a national Priority
Exports should be a national priority for any country since it is an important foreign exchange earner, besides contributing to the other economic activity. The Government should come out with a comprehensive package, in the forthcoming foreign trade policy, to help our exporters to penetrate our export markets.Exporters also look for provision of 100 % tax exemption for companies having 100 % export turnover
Address constraint in Service Exports
Services exports includes travel, transport, construction, insurance and pension services, financial services, charges for the use of intellectual property, telecommunications, computer and information services. The global market is now demanding skills in a host of other professional and technical services such as accounting, legal services, animation and industrial design. We are constrained by lack of adequate skills. Diversification of professional services beyond IT and IT-ES will also widen export earnings from services.India needs to have a strategic vision that can convert India’s large output of natural science, arts, and commerce graduates into employable resources.
Some suggestions for project exports relating to project export approval which can be overcome if RBI permits the Project Exporter to submit Guarantees to the Client and have it later ratified in the Working Group Meeting that considers the Project Approval. This will ensure that Indian companies are on par with local companies abroad. Also Sourcing norms to be relaxed for Infrastructure related projects undertaken overseas as this may make Indian companies more competitive.
Extend credit lines, especially to less developed countries, for project imports or import of essential commodities from India.
Boosting MSME exports
The MSME sector contributes 40 percent of the total exports from India. The share of MSMEs in total exports is spread across different product segments. In case of items like Textiles, Leather Goods, Processed food, Engineering goods & Gems and Jewelry, export performance has been commendable over the years. Sectors like Sports Goods are almost 100% export oriented. In view of this, export promotion from MSME sector has been accorded high priority in India’s export promotion strategy which included simplification of procedures, incentives for higher production of exports, preferential treatment to MSMEs in market development fund, simplification of duty drawback rules etc.
The key strategy to enhance MSME exports is to improve the manufacturing ability of the MSME sector which in turn is expected to improve the competitiveness of their products. Higher value addition, skill development and training, thrust on standardization and quality, access to affordable credit, impetus for innovation etc would be essential elements of the strategy.Lower the credit cost especially for MSME exporters and Create an Export Development Fund to support micro and small enterprises exporters.
Incentivise SEZs
SEZs are losing its attractiveness as MAT and DDT have been imposed. Exports from SEZs could be strengthened by extending Chapter 3 benefits like FMS, FPS, for units in SEZ and Investment linked IT deduction. Also Duty draw back benefit can be extended to the exports made to SEZ units where sales proceeds are realized in INR. MAT should not be made applicable to SEZs.
Some of the other recommendations are Imports bound for SEZ/FTWZs should be cleared on Arrival by using CCTV enabled trucks. Also Imports and Exports of SEZ/FTWZs units should not be subject to customs compulsory requirements (CCR) related to compliance with allied agencies; also doing away with the requirement of customs escort will reduce transaction costs
Establishing India’s Brand in overseas market, brand promotion
Promoting Indian products through marketing and brand promotion is crucial for boosting India’s exports and hence incentives should be provided to the exporter / manufacturer.It is important to allow eligible companies a tax deduction at the rate of twice the amount of expenses incurred on certain qualifying activities such as branding, advertisement, participation in fairs etc for which availability of finance is limited.Set up single national-level export promotion agency for double-pronged strategy of intensive marketing overseas and extensive assistance to domestic exporters in market development, information dissemination, FTAs, competitiveness etc. Unveil a brand promotion scheme to support brands already registered in India, with a certain threshold value of exports or domestic turnover.
Greater involvement of the Indian missions abroad for export promotion activities. The Economic Counselor, in the Indian embassy should identify export opportunities and also work with Indian banks to identify SMEs which can benefit from exports.

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