"After registering a decline in exports from $468 billion in 2014-15 to $437 billion in 2016-17, the government recently released its mid-term review of the five-year Foreign Trade Policy 2015-20, to gauge the impact of several incentives to bring relief to exporters. An incentive of Rs 8450 crores ($1.3 billion) was announced to help the export sector reach its goal of $900 billion by 2020 and increase India’s share in global exports to 3.5 per cent. Labour-intensive industries such as leather and footwear have been granted incentives of Rs 749 crores, the handmade carpets sector Rs 971 crores, agriculture sector Rs 1354 crores, telecom and electronics sector Rs 369 crores, garment sector Rs 2743 croresand so on."

After registering a decline in exports from $468 billion in 2014-15 to $437 billion in 2016-17, the government recently released its mid-term review of the five-year Foreign Trade Policy 2015-20, to gauge the impact of several incentives to bring relief to exporters. An incentive of Rs 8450 crores ($1.3 billion) was announced to help the export sector reach its goal of $900 billion by 2020 and increase India’s share in global exports to 3.5 per cent. Labour-intensive industries such as leather and footwear have been granted incentives of Rs 749 crores, the handmade carpets sector Rs 971 crores, agriculture sector Rs 1354 crores, telecom and electronics sector Rs 369 crores, garment sector Rs 2743 croresand so on.

Additionally, a new logistics division has been established in the department of commerce to coordinate logistics development. The incentives also include simplified paperwork, enhanced support to high employment sectors, duty-free procurement of inputs on a self-assessment basis, and other sector-specific incentives. The government has also announced additional steps to make processes relating to trade more straightforward, including a self-certification scheme for duty-free imports, a single point electronic contact to traders with the Directorate General of Foreign Trade for trade and consignment related queries, etc.

Global trends

After growing at a healthy 25.67 per cent export growth in September, October registered a decline of 1.12 per cent. Sector-wise, since September, there has been a 39 per cent decline in the export growth of garments, 25 per cent decline in export growth of gems and jewellery and 10 per cent decline in export growth of leather and leather products. As per recent WTO data, global trade is likely to increase by 3.6 per cent in 2017 from 1.3 per cent growth in 2016. The favourable rise can be attributed to the surge in import demand of North America. These growing numbers have led to the entire Indian textile industry introspecting as to why the exports numbers are going down.

Reasons of decline

Beyond foreign trade policies, the biggest reason that must have restricted the growth of textile in recent times is the implementation of GST and the process of receiving refunds by the exporter. Garment exporters say, competitiveness is affected by an increase in the requirement of working capital and a decrease in incentives for this purpose. Exporters are having a tough competition from countries such as Bangladesh, Sri Lanka and Vietnam. The cost disadvantage to India also includes the duty-free access to the European countries enjoyed by these countries. Moreover, value of the rupee has become strong and this has reduced its competitiveness in the global market.

Indian export growth has not even crossed 10 per cent since 2011. As per the World Bank data, no country has ever been able to sustain an overall growth rate of seven per cent while having an export growth rate less than 15 per cent. It is time for the policymakers to realise that quick-fix solutions such as cost incentives are no longer adequate for supporting the export growth in the long run.

Positive measures

To grow exports, the government needs to distinguish those sectors in which the country has a competitive advantage, and improve them in terms of market research, innovation, quality, cost, etc. Data reveals investments in R&D and human capital have been low this year. Some other critical areas of focus include poor infrastructure, inadequate logistics and other structural issues. Transport and logistics costs, found to be costlier than tariffs, pose another barrier. Some trade experts suggest that India’s foreign trade relations are somewhat complicated and inefficient. This is also a good time to bring about structural reforms because China is losing its position as the world’s manufacturing hub.