Business Today

Rs 1,700 cr package for exporters will only soften the blow

While the package might just soften the blow of the slowdown for some time, it cannot provide the exporters with a slowdown-proof shield.

twitter-logoShweta Punj | October 20, 2011 | Updated 16:20 IST

Exports have been India's brightest economic indicators in recent times. Amidst a deluge of disappointing data - inflation hovering close to double-digits, slipping factory output (4.1 per cent in August) - the battered United Progressive Alliance government has been taking refuge in the spectacular export growth numbers. Exports jumped 81 per cent in July, 44.2 per cent in August and 36.3 per cent in September.

Shweta Punj
Shweta Punj
However, exporters have remained wary and sceptical of the export data. According to a recent report by Business Today ("Up, Up and Down" in the 30 October, 2011, issue), exporters have been bracing for a slowdown for many months now, orders have started shrinking, and more exporters are looking at tapping the domestic market.

As export numbers show a clear deceleration of growth, the commerce ministry has announced what is being termed as a 'Diwali Bonanza' for exporters. A Rs 1700-crore package, which includes interest subsidy of two per cent on handicrafts, handlooms, carpets, small and medium exporters.

Fifty products in pharmaceuticals, chemicals, engineering would get special bonus of one per cent of export value; shipments to Latin America, Africa and CIS regions will be eligible for one percent duty credit.

Engineering exports have been the star performers of India's trade basket. According to the data, engineering exports went up by 187 per cent in July this year, which essentially means some products, would have grown by 200-300 per cent. Products that had no base or small base have found a market.

India has also aggressively diversified its trade - trade with traditionally strong partners USA and EU has been rather muted - while trade with Latin America and Africa has nearly doubled in the last three years.

Expectedly so, Industry associations are lauding the policy, terming it as a 'rescue measure,' a lifeline for exporters. Sanjay Budhia, Chairman, National Committee on Exports and Imports, CII, termed the policy as "a rescue measure for Indian exporters who were suffering from lower profit margins due to recessionary situations still prevailing in the US and the EU."

Ramu Deora, President, FIEO said," Factoring of these benefits will help Indian exporters to offer competitive prices which have assumed greater significance in view of compressed demand due to slowdown particularly in advance economies. These initiatives will help us to move closer to our target of US$300 Billion."

It is very important for India to step up its exports. Despite robust growth of exports, India continues to import more than it exports. In fact the gap is only widening - from a trade deficit of 8.7 billion dollars at the beginning of the Tenth Plan in 2002-2003 to $118.3 billion in 2008-2009.

Imports as percentage of GDP has grown from 12 per cent in 2002 to nearly 20 per cent in 2009-2010. On the other hand, exports as a percentage of the GDP has shown a marginal increase from 10 per cent in 2002-2003 to nearly 13 percent in 2009-2010.

A commerce ministry strategy paper highlighted the unsustainable nature of India's trade balance. If exports are not doubled in three years India could end up with trade deficit between 10.5 per cent and 11.5 per cent of gross domestic product.

So while the Rs 1700 crore package might just act as a cushion for some exporters, for a majority of small and medium enterprises the slowdown could be fatal. Most SMEs, which form the backbone of India's trade economy, battle with basic infrastructure issues that have only compounded over the years. Traders spend more on shipping goods within the country than to Singapore and Hong Kong. A majority of SMEs run on generators because of erratic power supply - making these units far less competitive.

Adding to infrastructure issues, India has not been able to push its handicraft and textile exports strategically -- exporters claim that the government has failed at branding India in the international market.

While the package might just soften the blow of the slowdown for some time, it cannot provide the exporters with a slowdown-proof shield. It is absolutely imperative for the government to get its house in order to give exports a real push and that would include better coordination between various ministries such as finance, commerce, road and transport, shipping, power - after all, trade, like everything else, requires an ecosystem to prosper.

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