Rise in exports: Govt support key to sustain growth

The brightest spot in the Indian economy right now, barring perhaps a relentlessly rising Sensex, seems to be exports. The latest data for September shows merchandise exports rose by 21 per cent compared to last year and 28 per cent compared to 2019. The second quarter - July to September - has also crossed a record level of over $100 billion.

The outlook is thus bright for exports to reach the target of $400 billion in the current fiscal, despite the vagaries of the pandemic. The initial reports of spurt in growth earlier in the year had sparked concerns that this could be a short term phenomena. But with the second quarter now displaying a robust performance, it looks like the export momentum will be sustained for the rest of 2021-22. Even the World Trade Organisation (WTO) has painted an upbeat picture of global trade flows during 2021, revising its earlier estimate of eight per cent for the year, to 10.8 per cent.

The positive news, however, must be tempered by the fact that even global trade is being hampered right now by a spate of issues beyond the control of the trading community. These include the semiconductor shortage that has led to a sharp dip in automobile exports all over the world. This has hit India as well creating long lead times in delivery of automobiles as well as other consumer goods which need chips as essential elements. While India's automotive exports are not large, the chips shortage can impact other engineering goods as well as industries producing other products.

Another hurdle has been the steep rise in global freight rates. These are directly linked to high cost of containers. The increase in container prices are owing to shortage of these critical freight items. This in turn is partly due to mismatch in production owing to the pandemic, and partly to congestion in ports that has reduced turnaround times for containers. The phenomenal increase in freight rates has affected trade flows everywhere and it would have been a good excuse in case exports from this country had failed to pick up.

Surprisingly, despite these constraints, exports have risen consistently this year. Some of the credit must go to pent up demand from western countries as Covid restrictions are gradually being lifted. Another contributing factor is the increasing focus being given by the trading community to western markets, at the expense of those in the east. Exports to the US, for instance, have risen by as much as 40 per cent in the month of June. Though China had recently displaced the US as the country's largest trading partner, this situation could again be reversed if exports continue at the current rate.

Yet another reason is the fact that the large volume of petroleum product exports have improved in value with world oil prices having firmed up. Prices of the benchmark Brent crude have crossed 80 dollars per barrel and thus the price of products like gasoline and diesel has risen proportionately. These developments have consequently raised the value of exports. But, it must be conceded that even non-oil exports have shown a significant increase in growth over the past six months.

In this category, pharmaceutical exports have been rising at a fast pace. In fact pharma exports have become the third largest category of exports. The big push obviously has come from rising global demand owing to Covid, but there has also been an increase in investment as well as incentives under the production linked incentives schemes (PLI) and the new collaborations in the area of vaccines and biotechnology.

The big question is, what can policy makers do to ensure that the current double-digit rise in exports continues at the same pace over the next few years. The first would be to expand the incentives now being given to exporters. A new scheme that is WTO-compliant, was launched in January this year, but government has taken a long time to notify the specific rates for various industries. There is also concern that it has not been extended to enough industry groups. A review of such incentives to ensure that these cover enough export sectors needs to be carried out. At the same time, the incentives need to be handed out in a time-bound manner if they are indeed to provide support to the exporting community.

The second is to provide infrastructural support to export industries. This is especially required in the area of agricultural and horticultural products. Even for wheat exports, which are expected to rise by as much as eight times this year, there is need for technical assistance to ensure that non-tariff barriers do not hold up shipments. Global wheat prices have risen significantly in recent times and this country has a surplus available to meet the demand in many countries. This is apart from India's consistent role as leading rice and sugar exporter.

Agricultural exports, however, pose many challenges especially those of quality specifications and for this technical expertise needs to be made available. Similarly, such assistance is needed for exports of marine and horticultural products which routinely face non-tariff barriers. For instance, mango exports to the US were held up for a long time in the past due to fears over pest infestations. These are all issues for which the government needs to provide support on a sustained basis so that exports can continue unhindered to major western markets.

With exports now apparently on a high growth path, it is incumbent on the government to ensure this trend continues not just for the rest of the current fiscal but for the years ahead. The Commerce and Finance Ministries need to carry out regular consultations with exporters to iron out their problems, whether these are short or long term issues. If the right policy support is provided, it may ultimately be possible to make this country a major global exporter and even improve its current low share in world trade.