The Economic Survey tabled in the Parliament in January 2017, has pegged India’s GDP to grow by 6.5 % during 2016-17, down from 7.6 % recorded in the last financial year, however, it is expected to rebound in the range of 6.75-7.5 % in 2017-18. Growth in exports on a year-on-year basis unfortunately has not been as desired, largely due to the global slowdown and the resultant demand destruction in India’s export markets. The good news, however, is that the 17.5% year-on-year rise in February 2017, the highest expansion since October 2011, has been encouraging. This will also be the first time since 2013-14 that India’s export growth looks likely to end the fiscal year on a positive note. Exports in the fiscal year to February were estimated at US$ 245.4 billion, up about 2.5% from a year ago. However, the Foreign Trade Policy 2015 target of achieving US$ 900 billion of exports by 2020, framed in looks distant.
The need of the hour is for India to substitute its commodity based, relatively low-tech exports with value-added high-tech, high-end products. Unfortunately, India still faces a huge import burden from sectors like electronics, machinery, and engineering goods. In merchandise exports, I believe that India needs to continue diversifying its geographical spread, especially now in light of the risk posed by a possible protectionist policy by the USA, which accounts for almost 15% of outbound merchandise exports from India.
Indian companies also need to relook at their operating strategies to augment India’s share in world exports beyond 2%. I would recommend changes in three broad areas:
Firstly, many Indian companies anticipate unsurmountable challenges in exploring developing and less developed foreign markets. In fact, huge opportunities exist in these non-traditional markets. This mindset of plucking the low hanging fruits calls for a sea change and fears of risks need to be mitigated through risk-proof financial services. Exim Bank of India through its programmes like Lines of Credit and Buyers’ Credit, has been extending credit directly to overseas Governments and government entities to implement development projects and benefit from expertise of Indian companies. The credit extended to such overseas entities are without recourse to Indian exporters. Many companies, including SMEs have benefited from these programmes which have served as effective market entry tools.
Secondly, import substitution and enabling exports are paramount for tilting the balance of trade in India’s favour. For India to become a major player in world trade, it has to focus on manufacturing products that can substitute our imports, which can not only stimulate our economy but also have the potential to achieve significant scale in national exports, and also create jobs. For example, the imports of electronics and machinery constituted almost 20% of India’s total imports in 2015-16. The share has remained the same even for the period of April-December 2016-17. Manufacturing such items domestically would not only reduce the trade deficit, but also help in increasing its exports, as there exists steady demand in other developing countries.
Thirdly, there is an urgent need for India to introduce global standards across sectors. Indian firms need to be assisted and aided to be able to meet the quality and technical standards defined by the government regulators and meet the competition in the global markets. Adequate institutional infrastructure solutions need to be provided to reduce the cost of complying with these standards on a sustained basis and making products of international standards with greater acceptability.
The Government of India has been giving a clear direction to Indian exporters to enhance their footprint in Africa and South and South-East Asia. The establishment by Exim Bank of the Kukuza Project Development Company, which encourages building the Indian project exports portfolio while simultaneously aiding the furtherance of economic and political ties between India and Africa is an effort in this direction. The setting up of a Project Development and Facilitation Framework for the CLMV region is also on the anvil.
The world today faces more protectionist measures than ever in recent times. In such an environment, an institution like Exim Bank can play a key role in supporting Indian companies to explore pockets of business opportunities in a disruptive world, which most commercial banks would be wary to enter. Promoting sustainable development and creating jobs would be key for development banks in this disruptive world. While international trade is largely a function of external demand, innovative measures by Indian exporters and financial institutions can surely help to provide a fillip to Indian exports.
Long Term Minimum Lending Rate (LTMLR) for the month of March 2017 is 9.45 % p.a.
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