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[op-ed snap] Labour-intensive exports need a policy push

Note4students

Mains Paper 3: Economy | Growth

From UPSC perspective, the following things are important:

Prelims level: Ease of doing business, Economic survey,

Mains level: Opportunity for India to take China’s place in labour intensive manufacturing sector


Context

Mid term review of Foreign Trade Policy

  1. The government of India has taken several measures to boost exports in its midterm review of foreign trade policy 2015-20
  2. Apart from incentives for specific sectors such as ready-made garments and footwear, it also allowed duty-free procurement of the inputs needed for exports on a self-assessment basis
  3. A new logistics division has been established in the department of commerce to coordinate development in the logistics space
  4. Read the full news here

India losing exports to smaller economies

  1. It is often argued that India stands to gain as labour-intensive manufacturing is moving out of China due to rising wages and an ageing population
  2. But this is not happening in a big way, and India is losing out to other Asian countries such as Bangladesh and Vietnam
  3. India’s “revealed comparative advantage”, an indicator of competitiveness, in some of the labour-intensive sectors has actually declined over the past decade
  4. The latest Economic Survey (2016-17) also highlighted how India is losing out in labour-intensive sectors like apparel and footwear, and why it is important to focus on these sectors

What India can do to increase competitiveness?

India will have to work on multiple levels to increase its competitiveness

  1. It will need to improve logistics to increase efficiency, both in terms of the time and costs involved
  • The trade policy review shows that the government is addressing this issue

2. The government will need to move forward with reforms in the factor market

  • India has a large number of small enterprises, which are not in a position to attain economies of scale and compete in international markets
  • Economic Survey highlighted, Indian firms in the apparel and leather sectors are smaller than those in China, Vietnam and Bangladesh
  • The reason for this is regressive labour laws
  • Similarly, more flexibility in land acquisition will also help the manufacturing sector

3. India needs to be prepared to protect its interests without compromising on its open trade policy

  • There is a threat of rising protectionism
  • India has always supported rule-based multilateral trade negotiations under the WTO
  • Seeing low progress on these, India should also look for opportunities to reduce trade barriers at the regional and bilateral levels

4. Keep the currency competitive

  • India doesn’t need an undervalued currency, but the Reserve Bank of India (RBI) should not allow the rupee to appreciate sharply
  • The 36-currency exports-based real effective exchange rate is still showing significant overvaluation
  • Now that India has adequate forex reserves, policymakers should reassess the kind of funds it needs
  • This will not only assist in keeping the rupee competitive and stable but will also help in conducting the monetary policy

Way forward

  1. Challenges on the export front may increase owing to the growing threat of protectionism and rising automation
  2. The government is working on increasing the ease of doing business, which should also help India’s exports

Back2Basics

A good time to go back to Economic survey and revise important chapters. Read it here

Boost for exports as Government announces more incentives

Note4students

Mains Paper 3: Economy | Effects of liberalization on the economy, changes in industrial policy & their effects on industrial growth

From UPSC perspective, the following things are important:

Prelims level: Foreign Trade Policy 2015-2020, Merchandise Exports from India Scheme (MEIS), Services Exports from India Scheme (SEIS), EPCG

Mains level: Various initiatives by government to boost trade and exports


News

Additional incentives to help boost exports

  1. In its mid-term review of the Foreign Trade Policy 2015-2020, government announced additional incentives to help boost exports
  2. This included simplified processes to help exporters and a commitment to roll out an e-wallet scheme to ease working capital issues for exporters in the post-GST regime
  3. Government also raised the incentive rate by 2 percent under the most popular Merchandise Exports from India Scheme (MEIS) and Services Exports from India Scheme (SEIS)

Benefits for whom?

  1. The additional incentives have been provided for exports by small and medium enterprises, labour-intensive and agriculture-based exports among others

Aim of Mid-term review

  1. It aims to promote exports by simplification of processes
  2. Enhance support to high employment sectors
  3. Leverage benefits of GST
  4. Promote services exports and monitoring exports performance through state-of-the-art analytics

About MEIS scheme

  1. Under the MEIS scheme available to exporters, identified sectors are given duty exemption scrips, which are fixed at a certain percentage of the total value of their exports
  2. These scrips can be used to pay duties on inputs and can be traded

Other steps to make processes relating to trade simpler

  1. Self certification scheme for duty free imports
  2. Single point electronic contact to traders with the Directorate General of Foreign Trade for trade and consignment related queries
  3. Creating a logistics division in the department of commerce
  4. Doing away with the testing of samples for drawback purpose and the introduction of e sealing facility for exporters
  5. Relaxations in the EPCG (Export Promotion Capital Goods) scheme

[pib] What are the schemes and measures to increase India’s share in global trade?

  1. The Merchandise Exports from India Scheme (MEIS) was introduced in the Foreign Trade Policy (FTP) 2015-20
  2. The Government is implementing the Niryat Bandhu Scheme with an objective to reach out to the new and potential exporters
  3. Interest Equalization Scheme on pre & post shipment credit launched to provide cheaper credit to exporters.
  4. By way of trade facilitation and enhancing the ease of doing business, Government reduced the number of mandatory documents required for exports and imports

[pib] What is Min of Commerce doing for Plantation crops?

  1. Department of Commerce has recently approved the Revenue Insurance Scheme for Plantation Crops  (RISPC)
  2. Aim: Protecting growers of tea, coffee, rubber, cardamom and tobacco from the twin risks of weather and price arising from yield loss due to adverse weather parameters, pest attacks etc.
  3. Scheme is to be implemented on pilot basis in eight districts in the States of West Bengal, Kerala, Karnataka, Andhra Pradesh, Assam, Sikkim and Tamil Nadu
  4. It will be implemented by the Commodity Boards through selected insurance companies.

Improve ports, logistics to boost exports: WB II

  1. While restrictions on agricultural markets have constrained productive private investments in higher value food products
  2. Govt needs to better target subsidies so that only the poor farmers are benefited
  3. Passive and non-targeted subsidies are not encouraging farmers to adopt new technologies and seed varieties
  4. The electronics sector, according to the Bank, faced constraints such as underdeveloped clusters and poor trade logistics
  5. The apparel sector is facing difficulties to import man-made fibre, preventing upgrading and diversification

Improve ports, logistics to boost exports: WB I

  1. What: World Bank report to improve Indian exports
  2. India must frame policies to reduce farm subsidies and cut import tariffs on cars and take steps to improve ports and logistics
  3. It suggested a set of policy actions in four sectors — agribusiness, apparel, electronics and automotive
  4. With the right set of productivity-enhancing policies, South Asia, led by India, could more than triple its share in global markets of electronics and motor vehicles
  5. In the farm sector, passive and non-targeted subsidies (e.g. water, fertilisers and minimum support price) have encouraged farmers to produce low value crops
  6. Farmers use low productivity and unsustainable techniques

Support small enterprises to boost India’s exports: President II

  1. Reasons for contraction: A weak global demand has adversely impacted India’s exports
  2. Reviving exports in a scenario of sluggish demand worldwide will remain a serious challenge for India
  3. Geopolitical instability, economic downturn, war and terrorism have further hampered the growth of world trade
  4. India also needs to support its SME exporters as they have the potential for accelerated growth
  5. But at the same time, SME’s are considered a high-risk venture by commercial lenders

Support small enterprises to boost India’s exports: President I

  1. Source: President Pranab Mukherjee
  2. The Centre needs to ensure that India’s exporters, particularly those in the SME segment, are adequately supported through appropriate policy interventions to help them tide over the present downturn
  3. India’s exports had contracted in 20 of the 21 months till August this year except in June 2016, when it expanded 1.27%
  4. The Centre will have to consider strengthening India’s institutional credit guarantee framework in the trade sector
  5. This includes the state-owned ECGC that promotes the country’s exports
  6. It improves the competitiveness of the Indian exporters through credit risk insurance covers and related services

Way ahead for Indian cotton exports

  1. Competitiveness of Indian cotton yarn in the international market should improve
  2. Govt should give 2% under the Merchandise Export Incentivisation Scheme and 3% under the interest equalisation scheme for one year
  3. This will help India increase export to other countries too
  4. Cotton Corporation of India should buy 70 lakh to 80 lakh bales of cotton in the peak arrival period and supply it to the mills later to stabilise the prices

India’s yarn exports decline

  1. The decline: India’s cotton yarn exports fell 11.58% in value terms and 4.44% in terms of volume during April – June this year compared to the same period last year
  2. Reasons: Exports to China, the main buyer of Indian cotton yarn, have declined
    Also an overall drop in demand in the domestic and export markets
  3. Problem for mills: Because of this, capacity utilisation in textile mills has also come down
  4. Further, fluctuations in cotton price have hit the textile mills
  5. Bangladesh is the second largest buyer of cotton yarn from India
  6. This year, India’s exports to Bangladesh & Pakistan have improved in terms of value and volume

Centre eyes sops to spur internal trade- I

  1. The Centre may soon consider a three-pronged approach to revitalise India’s retail and wholesale trade
  2. This includes (i) establishing a regulatory body for national internal trade (retail and wholesale), (ii) a comprehensive domestic trade policy and (iii) a Board for Internal Trade
  3. Currently there is no single regulatory body or ministry for domestic trade- comprising mainly non-corporate small businesses providing employment to an estimated 460 million people
  4. There are about six crore such small enterprises in the country with an annual turnover of around Rs.30 lakh crore
  5. It has been estimated that about 70% of the country’s retail trade has not been linked to computers and digitised

Way ahead on Board of Internal Trade

  1. Context: Setting up of Board of Internal Trade
  2. It is important to set up such a Board under a single ministry- the Commerce and Industry Ministry
  3. Why? Currently internal trade comes under the ambit of multiple ministries leading to delays in addressing their issues
  4. To help build a cashless system, the government needs to subsidise transaction costs in card use and incentivise digital payment

Centre plans to set up Board of Internal Trade

  1. Context: Setting up of Board of Internal Trade
  2. The Commerce and Industry Ministry will consider a proposal put forward by traders for setting up a Board of Internal Trade
  3. Aim: In a large and diverse market like India, internal trade has several issues that will need special attention
  4. The govt will benefit from getting alerts about the problems being faced by the domestic industry
  5. Even as exports have been affected by a weak global demand, India’s internal trade has been doing well

New marble import policy to end licence raj- II

  1. Lower MIP: The Minimum Import Price for marble blocks has been reduced to address the distortions associated with an MIP
  2. SIT rec: Incidentally, the Special Investigation Team (SIT) constituted to probe black money had recommended doing away with the MIP on products such as marble
  3. It had indicated that continued imposition of MIPsaying otherwise it could lead to money laundering
  4. The SIT had mooted strong action under the anti-money laundering legislation to prevent foreign trade-linked money laundering

New marble import policy to end licence raj- I

  1. The commerce ministry has notified the new import policy for marble and that it would come into effect from October 1
  2. Aim: To balance the interests of domestic consumers, producers and processors
  3. Also to end the cumbersome licensing system for import of marble and travertine blocks
  4. The Quantitative Restriction on the import of Marble & Travertine Blocks has also come to end
  5. To address the interests of domestic producers, the Basic Customs Duty on import of Marble will go up from the present 10 to 40%

Exports return to growth after 18 months

  1. News: India’s merchandise exports rose 1.27% year-on-year in June 2016 to US$ 22.6 billion
  2. Reversed a declining trend that started in December 2014 due to weak global demand and a fall in commodity prices
  3. Merchandise exports: Exports of goods, not services; Also called tangible exports
  4. Imports during June 2016 slid 7.3% to US$ 30.7 billion

Desperate need to check poor quality imports

  1. Context: Commerce Minister at ‘National Standards Conclave 2016’ organised by the Commerce Ministry along with CII
  2. Undesirable imports: Increasing tariffs or imposing quantitative restrictions alone cannot completely prevent poor quality and undesirable imports
  3. Solution: To ensure high quality standards for goods
  4. BIS: Bureau of Indian Standards needs to speed up its work with the ministries concerned to ensure matching high standards for locally-made and imported items
  5. Background: Allegations of a surge in imports of sub-standard goods from countries like China

Standard regimes from an international perspective

  1. It is essential to develop a coordinated national response to meet the challenges of the World Trade Organisation regime in standards and conformity assessment
  2. Trade agreements: Mega-regional free trade agreements, including TPP and TTIP are promoting high standards for global trade
  3. It is therefore important to anticipate the future scenario on standards and technical regulations in the context of TPP and TTIP
  4. Quality consciousness: The strategy of having different standards for domestic market and export market has not worked anywhere

Why a National Standards Strategy?

  1. A strong standards and regulatory framework would help domestic industry in becoming competitive in the world as well as domestic market
  2. This would help in increasing the exports by measuring up to standards and conformity assessment procedures both in quantitative terms and also getting higher value exports
  3. Also, such a regime shall fulfil the vision of ‘zero defect, zero effect (meaning, environment-friendly)’ and ‘Make In India’ campaigns
  4. It would also help prevent flooding of domestic market with unsafe/sub-standard imports which adversely affect consumers and domestic industry

Centre to evolve norms to enhance product quality

  1. Context: The Commerce Ministry will soon bring out a five-year National Standards Strategy Paper
  2. Aim: To weed out substandard products from the domestic market and boost India’s exports of high quality goods
  3. Also, improving regulations to ensure that India moves gradually towards adoption of more mandatory standards (also called technical regulations) that are harmonised with international standards
  4. An inter-ministerial panel is already working on identifying goods that do not conform to safety, security, environment and health standards

About the Capital Goods Sector Policy

  1. This is first ever policy for Capital Goods sector with a clear objective of increasing production of capital goods from Rs.2,30,000 crore in 2014-15 to Rs.7,50,000 crore in 2025
  2. And also raising direct and indirect employment from the current 8.4 million to 30 million
  3. Benefits: Help realise the vision of ‘Building India as the World class hub for Capital Goods’
  4. Pivotal role in overall manufacturing as the pillar of strength to the vision of Make in India
  5. The objectives of the policy will be met by the Department of Heavy Industry in a time-bound manner

Government approves capital goods sector policy

  1. Context: The Cabinet approved the first-ever policy for the capital goods sector in the country
  2. Aim: To triple the value of production of these goods to Rs.7.5 lakh crore by 2025 and create more than 21 million jobs
  3. Export: The policy also envisages increasing exports to 40% of production from the present 27%
  4. Domestic production: The share of domestic production in India’s demand will also be increased from 60% to 80%, making India a net exporter of capital goods

Oil prices & falling exports of India

  1. Dependence: India’s trade has been largely dependent on what happens with oil and the devaluation of currencies
  2. Effect: This has affected India’s export earnings- imports have gone down and similarly exports have also gone down
  3. Petroleum prices: There have been a lot of currency fluctuations in many of our markets
  4. The currencies have been devalued which has affected the competitiveness of Indian products
  5. Thus exporters have chosen to sell at low margins & hence while volumes have remained the same, realization has gone down

Decline in exports ‘at the end of the worst’

  1. India’s exports slid for the 17th month in a row in April to $20.5 billion
  2. Commerce Secretary: India’s shrinking exports is not a cause for alarm and the decline may be at the end of the worst
  3. The rate of decline in exports has started slowing & perhaps the worst is over and slowly the world is coming out of slowdown
  4. The decline in exports is in line with what was happening in the rest of the world
  5. If the slowdown in India is different from what is happening in the rest of the world then we would have been alarmed

Tap forex pool to help exporters: Ministry

  1. News: The Commerce Ministry wants the RBI to use a part of its forex reserves to give long-term loans at low interest rate to the Exim Bank of India
  2. Why? It will help Exim Bank of India to pass it on to exporters at lower rates than bank credit
  3. Criticism: Rate of export credit in India is 11-12 % as against 2-3 % in the Euro area and 5.5% in China
  4. Aim: To help reduce the costs and enhance the competitiveness of exporters at a time of global trade slowdown and weak demand overseas
  5. Fact: Recently, forex reserve had reached to a record high of around $360 billion

Centre mulls priority lending, SEZ revival among moves to boost exports

  1. Why: contracting export month after month for more than 12 months
  2. What: plan to offer incentives to small exporters, SEZs, labour intensive sectors, organic food processors
  3. Other steps: categorization of the entire export credit given by all lenders separately under priority sector lending without riders
  4. Better coordination with Indian missions overseas, relaxing norms for the Export Import Bank of India (Exim Bank) and Export Credit Guarantee Corporation of India (ECGC)
  5. Data: exports have declined from $314 billion in FY’14 to $310 billion in FY’15 and are expected to shrink further to nearly $260 billion this year
  6. Importance: Double digit growth impossible without exports doing well

Balance of Payments data

  1. Context: The balance of payments data released for the first nine months of 2015-16
  2. Investment: It has been falling sharply, coming down from 39% in 2011-12 to 32.9% of GDP
  3. The expectation was that higher real interest rates would pull up savings, but that doesn’t seem to be happening
  4. CAD: 1.4% of GDP at current prices for the April-December 2015 period
  5. The low CAD is the result of the investment drought in the economy, combined with a lower level of savings

Inter-ministerial meet to discuss measures to increase exports

  1. Inter-ministerial talks will begin soon to consider measures to boost exports and improve the ease of doing business.
  2. Background: Merchandise exports dropping for 13th month in row.
  3. The govt will also look into the likely impact of the proposed GST on exports .
  4. It will review free trade agreements, including the one with Asean member-countries.
  5. The commerce ministry will approach the ministries of external affairs and finance on customs-related issues.

Commerce Ministry prepares strategy to boost exports to Africa

Worried over declining exports, the commerce ministry has prepared a strategy to boost shipments to Africa.

  1. The ministry has identified several sectors as part of the strategy- engineering, agriculture and farm equipment have emerged as a major ones.
  2. The Department of Commerce will hold consultations with Ambassadors and High Commissioners of major African nations and industry stakeholders to implement the strategy.
  3. Indian farm and agri equipment are competitive as compared to western products.
  4. There are huge tracts of land in Africa and agriculture is the growing sector there.
  5. The two-way commerce between India and Africa is about USD 75 billion.

Commerce ministry backs measures to boost SEZs

  1. The Commerce Ministry is in the process of identifying reasons for the slowdown in the Special Economic Zones (SEZ).
  2. It has asked Finance Ministry to consider steps to boost exports from SEZs.
  3. The commerce ministry has raised issues regarding the removal or reduction of Minimum Alternate Tax and Dividend Distribution Tax on SEZs.
  4. Finance ministry has been asked to extend the Sunset Clause (provision relating to the expiry of the benefits to SEZs) on SEZs up to 2023.

States to formulate export promotion policies

  1. The aim is to give a concerted push to India’s declining exports.
  2. Centre has asked every state to come out with an export policy identifying product and services of interest that have significant potential in the global arena.
  3. The role of states is crucial with infrastructure, VAT, land and environmental clearances, and labour, under the domain of states.
  4. A few states, such as Jharkhand and Karnataka, already have export policies while Gujarat, Kerala, Andhra Pradesh and Punjab are in the process of formulating it. 

Fall in exports projected to be worst since 1952-53

  1. Merchandise exports this fiscal are projected to fall around 16% over the previous financial year.
  2. This will be the second worst export performance since independence, according to official data.
  3. Only in 1952-53, exports had fared worse when it shrank by 18.7%.
  4. Shipments during April-November this fiscal, had shrunk 18.46% as compared to the same period in 2014-15.

Exports of top 5 sectors dip 25% in August

  1. Exports of top 5 sectors viz. engineering, petroleum, gems and jewellery, textiles and pharmaceuticals fell by about 25%, due to global demand slowdown.
  2. These five sectors accounted for about 65% of the country’s total merchandise exports in 2014-15.
  3. These are labour intensive sectors and govt. should announce steps to contain the dip in outbound shipments.
  4. The continuous decline in exports is expected to impact jobs and put pressure on the current account deficit.

India has aimed at taking exports of goods and services to $900 billion by 2020 and raising the country’s share in world exports to 3.5% from 2%.

Total exports in the past 4 financial years have been hovering at around $300 billion.

Merchandise exports to decline by over 13 % in FY16

  1. India’s merchandise exports in 2015-16 are forecast to decline to $265-268 billion, significantly lower than $310.5 billion in the previous fiscal.
  2. This is mainly due to sharp erosion in commodity prices globally.
  3. The global merchandise economy has moved to a bearish and low cost situation where demand relates mainly to the actual consumption.
  4. There is no sentiment build-up around commodities and thus the demand is actually restricted to the real consumption.
  5. Indian exports had achieved a landmark of $300 billion in 2011-12 for the first time, making the country a sizeable player in global exports.

India’s global hub fears more job losses

  1. Nearly half a dozen large diamond companies in the city have closed down: a significant hit for an industry that employs nearly a million people in India, two-thirds of them in Surat.
  2. Chinese consumers pull back from luxury purchases, leaving jewellers with stocks of unsold jewellery and gems.
  3. Jobs are a critical issue for India’s government, struggling to revive economic growth to a rate that will create employment for millions joining the workforce every year.
  4. China represents fifth of the world polished diamond market and accounts for the same proportion of India’s $23 billion of annual exports.

Interest subvention scheme for exporters likely. Why?

  1. Amidst declining global demand and depreciating currencies, India’s exports fell by 15.82% in June – 7th consecutive declining month.
  2. Now planning to launch loans with subsidized interest rates to bolster the exports.

    Under the scheme, a portion of the rates is reimbursed by govt to lenders; loans at subsidised rates would help exporters boost shipments

Exports dip further

  1. India’s exports dipped further by 15.8 % in June to $22.28 billion, marking the seventh straight month of contraction.
  2. The sectors worst hit were petroleum products, engineering, leather and leather good, and chemicals.

Centre to set up trade facilitation council to promote exports

  1. Govt will set up a trade facilitation council comprising members of the Centre and states.
  2. The idea is to promote India’s overseas shipments with an objective of facilitating trade from states in a bid to boost the country’s exports.
  3. States will also be encouraged to set up a State Trade Policy in order to streamline procedures and increase exports.

In conversation with the Commerce Secy – Rajeev Kher

 


Sir, your views on the export data. Last six months, it has been very bad on our export economy.

This whole dimension of exports going down is definitely alarming. Asia which is one of the largest destinations for Indian exports has also been generally slowing down whether it is China or Japan or any other market, ASEAN, so that is of course one major reason.

What is the typical constitution of the basket of India’s exports?

About more than 30% of exports are coming out of petroleum products and gems and jewellery and because the petroleum prices have gone down so therefore consequent reduction of petroleum product prices is also happening.

What about our export competitiveness?

Two main issues there – Structural issues for example infrastructure is one big issue & then the ‘Ease of doing business’, which to be fair is a work in progress.

What according to you are the measure that are needed as far as exports are concerned?

Measures would be required on both sides –

One is the front end side and that is where these small incentives that we do by way of export incentives do help particularly the small sector.

There is a huge demand for interest subvention schemes which were there in ’13-’14 but not operational in ’14-’15. It will be a great boon to sectors which are traditionally niche for example the textile sector.

 

Drop in India’s exports continues. Why?

Continuing decline in exports would result in layoffs and also put pressure on Current Account Deficit (CAD).

  1. India’s exports fell over 20% in May to $22.3 billion, for the sixth straight month in a row. But why? 

Two probable reasons – 

  1. Sluggish demand in key global markets such as the U.S. and Europe have hurt Indian exports.
  2. While the sharp fall in crude oil prices since last June has helped India reduce its import bill, India’s export of petroleum products (which make a sizable share of the export bill) has also taken a hit!


:( We are working on most probable questions. Do check back this section.







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