International Trade - World Trade Organisation

1. RECOMMENDATIONS TO THE MINISTRY OF FINANCE
SUGGESTIONS TO INCREASE EXPORTS IN INDIA
SUBMITTED BY: THE ‘A’ TEAM
PGPMX – MUMBAI 2015-17
 AMOL DANDEKAR
 AMIT JAITLY
 MICHELLE DSOUZA
 MANDARRISBUD
 SANMEET DHOKAY
 VINODMALIYEKAL

2. CURRENT SCENARIO AND CONTEXT:
China’sshare inglobal GDP tripledfrom3.6% in 2000 to 19.5% in 2015 mainlythroughexports,whereas
India’sshare inglobal GDPdoubledfrom1.4% to 3%. India’sservice exportsaccountfor50% of overall
exports.Toget closertoChina’sperformance,India’smerchandise exportshave toincrease muchfaster.
But insteadof risingtheyhave fallenby16.73% in value inthe April 2015-Februrary2016 period. Table 1
belowof India’sforeigntrade from2010-11 to 2014-15 revealsastagnationinthe dollarvalue of exports,
around$300 bn per annum,inthe past fouryears. Also, exportswere able tofinance justtwo-thirdsof
imports.
During2010-14, India’sexportperformance conformedtothe average.Itsshare inworldexportsstayedin
the range of 1.5%, while itsshare indevelopingcountries’exportsremainedunchangedat4%.Yet, in the
same period,some Asianeconomies,suchasChinaand Vietnam, increasedtheirshare inworldexports.
Indiafaredworse thanthe average in2015.Its performance inexportsof manufacturedgoodswas below
par throughoutthe period,asitsshare in worldmanufacturedexports(1.3%) wassignificantlylessthanits
share in worldmanufacturingvalue-added(2.3%).
The slowgrowthin worldtrade doesimpose ademandconstraintontotal exportsfromdeveloping
countries.Butthisdemandconstraintisnotbindingforsingle countriessuchasIndia,particularlyif their
share in worldexportsissmall.Afterall,inthe same worldeconomy,several Asiancountriesboostedtheir
exportperformance byincreasingtheirshare inglobal exports.
India’sexportshave beenfallingindollartermsfor the past17 monthsina row (to May16). Fallingexports
can be attributedtoweakglobal demandandhence beyondthe control of Indianpolicymakers.A
significantpartof India’s exportsconsistsof refinedpetroproducts,ironore andminerals,whoseprices
have fallensharply,eventhoughvolumesmayhave risen.Butthatisnotthe case for all exports.Also,
countriessuchas BangladeshandVietnamhave beenable toincrease theirexportsindollartermsduring
the same period.So,deterioratingglobal demandorfallingpricesare notthe onlyreasons.
Nor isan overvaluedcurrencythe reason.
From Jan15 to Mar16, the rupee marginallydepreciatedagainstthe yuanandyetourexportswere falling.
The currenciesof some countries(SouthAfrica,Brazil,Russia,Malaysia,Turkey,Canada,the Eurozone)
depreciatedbymuchmore,relative toUSdollar,while the exportsof several of themdeclined. The real
exchange rate or REER whichbettercapturesthe average price competitivenessof India’sexportsrelative
to itscompetitors — hasremainedflat overthe periodof fallingexports.Theseimplythatthe exchange
rate wasnot the primaryreasonfor the fall inIndianexports.
For the same reasons,Devaluationtomake exportscompetitive,isnota real option.Investmentsmade in
Indiabasedonan artificiallylowexchange rate willturnoutto be uncompetitive whenthe exchange rate
normalises.Orderlymovementof the rupee ismore importantand should be drivenbymacroeconomic
stability,stablecapital flows(longtermcapital flowsandFDImoney) andforeignexchangereserves.
Fallingexportscouldbe the resultof factorsspecifictoindividual productsandmarkets.Thismayalso
explainwhyexportsfromBangladeshandVietnam, whose commoditycompositions,marketsand
integrationwithglobal supplychainsare differentfromIndia’s,couldbe risingwhile Indianexportswere
falling.
We believe thattoboostexports,certain structural/institutionalchangesin the economy needtobe made
to improve ourinternationalcompetitiveness suchasremove infrastructural bottlenecks,enhance
productivityandaccessto finance,increasedomesticcompetition,keepinflationincheckandimprove the
ease of doingbusinessinIndia.

3. A country’sexportperformance alsodependsonthe creditterms,brands,reputationaboutreliable
productqualityandmaintenance of deliveryschedules,qualityof repairandservicingfacilities(for
consumerdurablesandmachines),linkageswithglobal supplychains,accesstoglobal marketingchannels,
trader networks(note the role of expatriate ChinesetradersinexpandingChineseexports),membershipof
bigpreferentialtradingarrangements,labourmarketflexibility(inthe face of suddenrise/fallinexport
demand),efficiencyof storage andtransportationfacilities,trade facilitationatthe customs,andso on.
It isimportantthat cohesive andcombinedeffortsof differentarmsof the governmentbe made sothatthe
overall climate isenhanced.
Some suggestions:
[1] IMPROVE INTERNATIONAL COMPETITIVENESS
(i) Improve productivityinorderto getmore competitive inthe global marketsandpushexportgrowth.
Productivitycanbe improvedbybuildinginfrastructure,simplifyingbusinessregulationsandtaxation,
improvementinaccesstofinance,andincreatinga goodbusinessenvironmentthatsupports
entrepreneurialactivity.
(ii) Infrastructure:Productivitycanimprove simplybyreducingexistingbottlenecksorbyadoptionof best
practices;itimprovessimply if abetterroadisbuiltfroma factory to the railwayjunction. Improved
domesticinfrastructure suchasroads,portsand poweriscritical. Indiaisone of the largestproducers milk,
fruitsandvegetables etc. Yet, ourshare of the worldtrade inthisis lessthan1%. This can be attributed
largely tolack of investmentinpost-harvesttechnologyandinfrastructure thatcandeliverthese
perishablestothe worldmarket.
(iii) Reduce costs: Indiamustcompete witheveryothernationonearthinselling(exporting)goods&
services.Toimprove India’sglobal competitiveness,we mustreduce costsimposedonthe productionand
distributionof goods&services.Thatwouldincludetaxes,bribes,unnecessaryorinefficientgovernment
regulation,lackof orbad infrastructure (thatimposescostsof bothtime &materialsonall users),costsof
inputstoproduction,transportation,etc.
(iv) Improve quality: If Indiamakeshigherqualitygoods&servicesthanitscompetitorsinthe restof the
world,itcan commanda higherprice forthem. The governmentcanplayitspart by improvingits
programmesandinstitutesthatprovide employableskills.
(v) The cost of Finance:Since 45% of exportscome fromthe small andmediumscale sectors,the impactof
fallingexportsismore severelyfeltonthissector. Provisionof bettercredittermsandcheaperfinance
schemes are veryimportantto boostthis sector. There are manyreasonsfortheirlack of competitiveness
vis-à-visChinaandone of themis credit andfinance. Althoughthe governmenthasimplements schemes
such as Micro Units DevelopmentFinance (MUDRA) itisnotyeteffectivelyreachingthissector.
[2] REGIONAL ENGAGEMENT: Get our regional engagementstrategy/regional FTA’s right;that’sourbest
marketgivencloserdestinationsmeanscheapertransportcosts,cultural affinityandgoodsmade forthe
regionwhichhave the same characteristics. Example:ourregional neighborshave natural resourceswhich
can be harnessedforpowergeneration;we have some of the finestpowerequipmentmanufacturersin
Indiabothin the private andpublicsectorsthisisanotherarea of huge exportpotential.IRCON,Border
Roads Authorityare some of the goodPSU’s whohave a good track record of that can leveragedby our
neighbors.Lookattrade with Africaouroldesttradingpartner;similarmarketconditionsandproduct
needslike India.

4. [3] INCREASE EFFECTIVENESS OF EXPORTS THROUGH TRADE AGREEMENTS/PACTS
In order to provide Indianexportersbetteraccessto variousmarkets,the government shouldimprove its
regional,bilateral andmultilateral trade negotiationswithvariouscountriesandtrade blocks. Inthe past,
Indiahas hadpoor trade performance in the free trade agreements(FTA)/comprehensive economic
partnershipagreements(CEPA)ithasenteredintosofar.In a paperpublishedinthe EconomicandPolitical
Weekly(EPW) in2014, BiswajitDharandK.S. Chalapati Rao,professorsof economicsatJawaharlal Nehru
UniversityandInstitute forStudiesinIndustrialDevelopment,showedthatunfortunately,barring
Singapore,India’simportshadincreasedata muchfasterrate than exportswithall FTA/CEPA partners
between2005 and 2012. (Chart 4)
[4] IDENTITY NEW MARKETS (countriesandsectors) totrade with. For example,the infographicinTable 2
belowshowsIndia'sgoodsexports. Youcan see several countries,tradingblocksandindustriesthatare
under-represented.There are similargapsinthe Servicesexportcenter.Manufacturingexportsare a
tremendousareaof opportunity.
[4] INCREASE SHARE OF TECHNOLOGICAL CONTENT OF EXPORTS
India’spoorexportperformance isbestcapturedinthe country’sfailure tomake amark inexportof
technologicallyadvancedgoods.WorldBank’sWorldIntegratedTrade Solution(WITS) database classifies
exportsintofive mutuallyexclusivecategories:primary,resource-based,low technology,medium
technologyandhightechnologyproducts.MappingIndia’sperformance onthisindicator (Chart3) shows
that althoughthere wasnotmuch difference betweenIndiaandChinaintermsof technological
classificationof exportsin1992, the gap hasincreasedconsiderablyby2014. NotonlydidIndiafall behind
China,ithas alsofallenbehindVietnam,whichhadasmallershare of hightechnologyandmedium
productsin 2000 (earliestyearforwhichVietnamdataisavailable) thanIndiahadin1992. The
governmentshouldclearlyenable thissectorsothatthe value of the exportsgoesup.
[5] CREATE INDIGENOUSSOURCES OF SUPPLY,where possible,forimportsthatformparts of exportsto
provide acost advantage,or at leastreduce the costdisadvantage.Manyof India'sexportstodayhave
significantimportcomponents.
[6] ENCOURAGE STATE GOVTS TO FOCUS ON EXPORT PROMOTION MEASURES:
The Centre should push the State governments to develop more supportive export strategies. These can
include the settingupof SpecialEconomicZones(SEZ’s),pinningaccountabilitytothe relevantgovernment
department with strict target improvements, address infrastructure constraints, reduced regulatory red
tape, single window clearances etc.
[7] EXIM: Recapitalizing EXIMIndia to play the same role EXIMUSA and EXIMChina have played.

7. India’s merchandise Exports, Imports as well as Trade Deficit during the last three years
have shown a mixed trend as evident from the table below:-
Values in US $ Billion
Export Growth
%
Import Growth
%
Trade
Deficit
Growth
%
* GDP Trade
Deficit
as % of
GDP
2012-13 300.4 -1.8 490.7 0.3 190.3 3.8 1835.8 10.4
2013-14 314.4 4.7 450.2 -8.3 135.8 -28.6 1875.2 7.2
2014-15 310.5 -1.2 447.6 -0.6 137.1 1.0 2051.1 6.7
*Source: CSO, New Series Estimates( 2012-13, 2013-14), DGCI&S
CHART OF INDIA’SIMPORTS AND EXPORTS