With the decline in export growth continuing, Hegde initiates contingency measures
HAS the government done too little, too late, to promote India's exports? After registering a rather handsome growth in 1995-96, India's exports have crashed facedown in the last two years. The situation in the current year is probably worse. With exports recording negative growth in May and June, India is on the verge of facing one of the worst trade crises in its economic history.
Exports grew constantly in the post-reforms period and in 1995-96 saw its height at 21 per cent in dollar terms. Then came the downslide. In 1996-97, growth was a meagre 4.6 per cent, and in the last financial year (1997-98) it slumped to an unprecedented 2.6 per cent, leaving a huge trade deficit of $6.6 billion. With the progress made in the current year, the trade deficit could well touch $10 billion.
The picture currently is bleak. While overall export grew by about 1.2 per cent in April, in May it registered its worst—growth fell by 17.79 per cent against May 1997. Exports in this month are valued at $2.36 billion against $2.86 billion in May 1997. According to estimates by the Federation of Indian Export Organisations (FIEO), exports in the first quarter of the current fiscal year were expected to show an overall negative growth of about 15 per cent.
This is giving the government sleepless nights as trade is one of the important growth engines of the economy and a major foreign exchange earner. The present foreign exchange reserves of $24 billion are good enough for about four months of imports. With the RBI using $3.5 billion to $4 billion for rupee management, the amount available for trade could be even less.
The government says the export slowdown can be traced to a general slowdown in world trade which grew by just 3 per cent in value terms in 1997. It says the Southeast Asian crisis too took its toll on India; it slowed down exports to that region and destroyed India's competitiveness in items of common interest due to a steep depreciation of currencies. These include marine products, textiles including raw cotton and cotton products, man-made yarn and fabrics, pharmaceuticals and fine chemicals, agro products, finished leather, iron and steel, gems and jewellery, plastic products, automotive parts, machinery and transport equipment. All these products have a considerable weight in India's export basket. The only sector which has done well is electronic software, exports from which has grown constantly. Apart from this, some of India's other regular markets like Germany and Japan are also in the throes of a severe demand recession.
The immediate cause of the decline, say sources, is a fall in exports of cotton yarn fabrics and made-ups, electronic hardware and processed foods including meat products. Low offtake from some of India's principle ports—Nhava Sheva, Bangalore and Vizag—have also compounded the problem. According to the Directorate General of Commercial Intelligence and Statistics (DGCIS), exports from these ports fell by about 30 per cent.
BUT exporters put the blame squarely on the government for its inability to take adequate, timely measures to boost exports. According to FIEO, the main reason for the sagging morale in the export sector is the lack of adequate incentives for exporters stifled by bureaucratic and procedural hurdles, high cost of credit and infrastructural bottlenecks which successive governments have failed to remove. On top of that, lack of proper quality standards and high cost of production have made Indian exports highly uncompetitive in the world market. Says an FIEO official: "The lack of promotional measures in the budget and the 8 per cent counterveiling duty (later reduced to 4 per cent) has only put more burden on them and defeated the well-intended measures announced in the trade policy in March."
The bickering between the ministries of finance and commerce over concessions to exporters has only added to the confusion. Says FIEO president Ramu S. Deora: "The success of trade policy depends on the right synergy with fiscal, credit, finance and infrastructural policies. In reality, the final rules, regulations, procedures prove to be contradictory and conflicting at the level of implementation. As a result, exports are lagging behind despite our best efforts." He complains that while Hegde has made a lot of promises in the amended exim policy, the same enthusiasm has not percolated down the bureaucratic levels. At this rate, Ramakrishna Hegde's dream of a 20 per cent export growth for 1998-99 will remain a dream, he says.
The BJP-led government blames its predecessors and says it inherited a deficit-ridden export regime riddled with complex rules and procedures. It claims the measures taken by the Congress and UF were shortterm and lacked vision as a result of which there was no contingency plan at hand. Says Hegde: "There is no short-term solution to the crisis. There has to be a long-term plan taking into account all the problems and loopholes. If necessary, the entire system would have to be overhauled." True, but this government too has done little to further the cause. While the amendments to the Export-Import Policy announced earlier this year were aimed at removing these bottlenecks, not much has happened since then.
"Nothing is moving in the government beyond policy announcement and the main trade promotion agency, Directorate General of Foreign Trade (DGFT), is either understaffed or has no staff who understand the business," says R.K. Dha-wan, former additional director general of foreign trade. He notes that since his retirement four years ago, his post has been lying vacant. Dhawan adds: "The government is spending more time catching defaulters, rather than helping the remaining 99 per cent genuine ones."
To be fair, there are signs of the government waking up to the problem. Its intentions are clear: to give the export sector a reviving thrust and to bring it back on a high growth track. Target growth: 20 per cent in dollar terms. And it is pretty desperate now. Hegde has written to finance minister Yash-want Sinha to amend certain budget provisions which were acting as disincentives. These include exemption of manufacturer exporters from special additional duty, exemptions from special customs duty for imports under special schemes like duty entitlement pass book and advance licence schemes and reimbursement of the special additional duty under the duty drawback scheme.
On the anvil is a sector-specific package to reverse the declining trend. The package formulated by the ministry of commerce is under consideration of the ministry of finance and is expected to be cleared soon.
Earlier, the government announced sops for the information technology (IT) sector. While moving the Finance Bill in Parliament, Sinha announced tax incentives for the IT sector which includes change in the definition of computer software under the Income Tax Act. This would enable the sector to avail the benefits of 100 per cent deduction on export earnings and total duty exemption for computer and computer peripherals imported under 100 per cent EOU, EPZ, and software technology park schemes.
The two ministries will be meeting next week to discuss ways to curtail cost of export credit and formulate a long-term policy on export promotion. According to Hegde, the new policy will give more freedom and flexibility to exporters in their operations by removing the bottlenecks that are stifling their performance.
The government might be acting out of desperation and announcing innovative schemes, but past history has shown that a lot of good measures—export thrust areas, brand equity fund and export matrix, for example—have been dumped by succeeding governments and ministers. If something concrete is not done on a war footing to get exports back on a growth track, India might soon lose its bargaining position in the international scenario.