Articles > It’s Crash Intervention
Time for Suresh Prabhu
It’s Crash Intervention Time for Suresh Prabhu
The Wire, September 18, 2017
By Pradeep S Mehta and
India aims to double the value of exports to $900
billion by 2019. Given sluggish global demand and our own
export slump, there is no way that this objective can be
India’s newly appointed commerce and industry minister,
Suresh Prabhu, has his task cut out.
While he has little time to firm-up India’s positions in
various bilateral, regional and multilateral negotiations
such as the Regional Comprehensive Economic Partnership, the
forthcoming Buenos Aires Ministerial Conference of the World
Trade Organisation members is his biggest challenge is to
revive our exports and associated sectors for large-scale
Upon assuming office, Prabhu adroitly said: “… [e]xports to
GDP ratio has to rise … So we are at a crash intervention
sort of a thing. We are trying to work out what has to be
done to promote exports in a shortest possible time which
includes issues coming up because of the Goods and Services
He is right, as no country in the world has experienced
healthy growth over a sustained period of time without at
least a 12% to 15% annual increase in exports.
Therefore, the ‘Foreign Trade Policy of India’ and the
‘Industrial Policy’, which are expected to be unveiled soon,
should complement each other and should have specific
measures to revive our exports for employment generation.
In this context, Prabhu has rightly said that “Global supply
chains are now become a reality. India is part of that in
auto components and generic formulations. You cannot join
the global value chains unless your own technology,
manufacturing ability is up to that level in other sectors”.
He also emphasised on an agriculture export policy to
integrate Indian farmers into the global supply chains and
raise their incomes.
Three immediate steps
One of the objectives of our ‘Foreign Trade Policy’ is to
double the value of India’s exports to $900 billion by
2019-20. Between 2014-15 and 2016-17, our exports have
declined from $468 billion to $437 billion. While it is
expected to increase to about $500 billion this year, given
the sluggishness of global demand and challenges in our own
export competitiveness, there is no way that over the next
couple of years this objective can be achieved.
However, some specific immediate actions can be taken over
the next six months or so to boost our exports. First, there
should be correct valuation of the Indian rupee. Our
currency is becoming stronger due to various monetary policy
developments, domestic as well as international. As Indian
inflation is more structural in nature, there is not much
threat to it from correcting the value of our currency.
While some of our imports will become costlier, given the
fact that a majority of our producers are mostly sourcing
their inputs domestically, this policy measure will
certainly help our exporters to gain some relative
Secondly, in the Foreign Trade Policy as well as in
Industrial Policy, there should be specific measures to
boost export-oriented foreign direct investment. Policies
towards special economic zones and export-oriented units
should be revived and modernised. Other than attracting new
technologies to make our exports more competitive and
helping our companies to get into global value chains, this
can create large-scale employment opportunities.
Thirdly, there should be a special section on agriculture
exports, including processed food, in our Foreign Trade
Policy. From a high of more than $40 billion couple of years
ago, our agricultural exports have declined to just above
$20 bilion. Given the richness of our agro-climatic
conditions and with the right kind of flanking policies in
place such as a benefit sharing mechanism between
farmer-producers and manufacturers/exporters, this sector
can contribute hugely to our export basket and also create
new jobs in our rural areas.
Over the next two years, there should be at least two
measures to boost our exports. First, in our Foreign Trade
Policy, the’ Focused Market and Focused Product’ initiatives
are to be revived. Instead of providing direct
incentives/subsidies as in the existing Merchandise Exports
from India Scheme (MEIS) and Services Exports from India
Scheme (SEIS), there should be support to some specific
sectors to consolidate their existing markets and explore
new ones. As against subsidies, they should be helped with
action research for market developments as well as R&D
support to adhere to increasingly higher level of sanitary/phyto-sanitary
and technical standards in international markets.
This is because of India’s commitments to the WTO that once
it crosses the per capita annual income threshold of $1,000
and sustains it for three consecutive years, it will stop
providing export incentives such as duty drawback. It is a
reality now and in near future many support measures under
MEIS as well as SEIS can be challenged as WTO disputes.
Secondly, for enhancing our trade competitiveness, more
specific logistic support measures are to be implemented at
the border as well as behind-the-border so as to reduce the
transaction costs of doing trade. For this purpose, there
should be alignment between trade policy measures and those
in the transport and logistics sector.
For our exports to sustain double digit growth and for our
companies to penetrate into global value chains, we have to
realise that trade is a two-way street. This should be the
paradigm shift in our thinking about trade. We have to get
out of the mindset of “exports are good, imports are bad”.
The main reason why we fear imports is that we are not
competitive enough. While it is easy to blame the so-called
manipulative practices of some of our competitors, the onus
of becoming competitive lies on us. In today’s India, the
input costs of production are relatively high than most of
our competitors. We are able to do some exports mainly
because of various incentives/subsidies and the network that
our exporters have developed over time.
There is not much effort on the part of our producers,
particularly those in micro, small and medium enterprises,
to become more competitive through innovations and
concomitant higher productivity gains. In most cases, due to
rigidities in our input markets, they are not interested in
investing their resources to innovate.
Therefore, over the next five to ten years, we should take
country-wide consolidated measures to reform our input
markets in a manner that they are beneficial to all
concerned stakeholders. Given the political system and
accompanying political economy of India, it is easier said
However, examples of arriving at broad political consensus
on matters of national interest are there. As against taking
ad-hoc measures to score brownie points, the country as a
whole should take a research-based approach to reform our
input markets so that we become dynamically competitive. It
is possible to implement this agenda as a positive-sum
Pradeep S. Mehta and Bipul Chatterjee are secretary
general and executive director of CUTS International, a
global think-tank on trade, regulations and governance.
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