(Online Course) Contemporary Issues for IAS Mains 2012: Yojana Magazine - India’s Foreign Trade Scenario

Yojana Magazine

Foreign Trade - India’s Foreign Trade Scenario

The country’s foreign trade scenario at the end of the final year of the Eleventh Five-Year Plan (2007-12) appears to be well on course, though the wholesome high export growth the country compassed in the first half of the fiscal 20011-12 may not be repeated for the full year. This is because since October, 2011 the pace of double-digit heady export growth has perceptibly slowed down, due to multiple reasons, the most important of which remain the halting recovery in the case of the United States and no growth in the crisis-laden Euro zone since both of them still account for substantial chunk of the country’s exports. It would be appropriate to trace the performance of the export sector particularly in the aftermath of the global financial meltdown in 2008. In fact when every country in the world was hit by one way or another of this world crisis, Indian authorities converted the challenge of the crisis into an opportunity to wean itself away from traditional markets and traditional products to experiment with the boldest policy
initiative that it put in place in the five-year Foreign Trade Policy (FTP) for 2009-14.

Q. Give an account of the performance and initiative of the export sector in the 11th Five Year Plan.

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Answer: As a corollary to the paradigm shift in foreign trade policy, exports in 2010-11 logged an unprecedented growth rate of 37.5 percent over the previous year. The export target of $200 billion for that year was far exceeded with exports fetching $245.86 billion, crossing way ahead of the target for the first time. Imports in that year stood at $350.3 billion. Trade deficit which was $118.40 billion in 2008-09 and $109.62 billion in 2009-10 had come down to $104.2 billion in 2010-11. This was rendered feasible primarily due to stability in policy, conscious bid to diversify products and markets and additional incentives to sectors affected adversely by global recession. This has also been complemented by due fillip for technological upgradation of export sector and through simplified procedures for exporters to cut down their transaction costs. Mention needs to be made of the two significant export promotion schemes that are essentially tailored to enable innovative entrepreneurs to explore new markets and products. The Focus Market Scheme (FMS) aims at diversification of markets covering 112 markets, while as many as 41 existing markets have been given additional one per cent duty credit scrip effective from April 1, 2011. With the objective to promote exports of products of high export intensity but which have a low penetration in identified countries, the Government unveiled a timely Market Linked Focus Product Scheme (MLFPS). Nearly 300 products from the ready- made garments sector were incentivized under MLFPS for further six months from October 2010 March 2011for exports to 27 European Union countries.

The Government also meanwhile released a timely Task Force report on Transaction Cost to trade and industry which responded to issues raised by exporting community from the different line Ministries. The report envisaged implementation of 23 identified issues across seven different line Ministries of the Central government. The measures are likely to mitigate the transaction cost to the tune of Rs 2100 crores in perpetuity. Accordingly in a bid to make filing and issue of Import Export Code (IEC) hassle- free with minimum human interface between the trader and the regional offices of DGFT, an additional facility of filing “online application” filing facility for obtaining IEC is made available on the DGFT’s website.

More recently, the Commerce Ministry laid out a draft strategy paper for more than doubling the country’s exports to $500 billion. This strategy is so designed as to accelerate the growth of exports so as to keep the trade deficit within manageable bounds. The strategy is centred on four key elements which include

  1. at first level, there is product strategy where clearly we need to build on the intrinsic strengths of our industry such as engineering and chemicals.

  2. Second pillar would be strategy of marked diversification as in the coming years the developed world is unlikely to see high growth nd strong demand. There is a clear rebalancing of the global order under way and markets in Asia, Africa and Latin America will certainly have far greater potential.

  3. Third pillar of the strategy would be the support for technology and R & D and (iv) it is proposed to give a focused thrust in building a brand India which would need strengthening of quality enforcement regime through the Bureau of Indian Standards (BIS).

Q. Point out the role and significance of SEZs in Indian Economy.

Meanwhile, the Government also intensified the concept of Special Economic Zones (SEZs) that were exclusively designed to offer a trouble-free and dedicated infrastructure amenities in the export enclave so that the exporters need not run from pillar to post to get many things done but instead focus on their core and sole goal of enhancing exports. It may be noted that India was one of the foremost in Asia to recognize the efficacy of the Export Processing Zone (EPZ) model in promoting exports, with Asia’s first EPZ set up in Kandla way back in 1965. Seven more EPZs were set up subsequently. In order to entrench the concept of export enclave in a more durable fashion for ensuring enduring benefits to the economy, the Government brought the Special Economic Zone Act, 2005 which was enacted in February 2006 with supporting rules. Thus over and above seven Central Government SEZs which were the earlier EPZs and a dozen State/private sector SEZset up prior to the SEZAct 2005, as many as 582 fresh proposals had been cleared by the Government till November in a short span of less than seven years. Out of this, 383 SEZs have been notified in which as many as 148 SEZs have been already exporting.

Available official figures reveal that as on end-September 2011, SEZs have provided direct job to 7.33 lakh persons across the country. Physical exports from the SEZs have increased from Rs 2.21 lakh crore in 2009-10 to Rs 3.16 lakh crore in 2010-11, registering a hefty growth of 43 percent. In the first half of the current fiscal (April to September, 2011), exports from SEZs has been of the order of Rs 1.76 lakh crore, logging a growth  of 26 percent over the exports of corresponding span of the fiscal year 2010-11. The aggregate investment in SEZs till end September 2011 amounted to Rs 2.77 lakh croe, including Rs 2.58 lakh crore in the newly notified zones. It is also noteworthy that 100 percent foreign direct investment is allowed in SEZs through automatic route, enabling industrially advanced States like Gujarat, Tamil Nadu, Karnataka, Andhra Pradesh to get one up with the rest of the country. The Commerce Ministry is fully conscious of this lop-sided growth in SEZs and in response to criticism of this and others like misuse of lands meant for export enclave, it has decided to  revisit the rules of SEZs to make it more geographically spread and devoid of scope for any misuse as far as possible. In the wake of widespread criticism that lands meant for agriculture are being misused, it has also  proposed to prune the area of multi-sector SEZs from the extant 5000 hectares to a reasonably modest level without compromising the benefits bestowed on the SEZs.

It is also revealing that studies done by the Commerce Ministry and independent visits to the SEZs by economists and media also highlighted how these zones have fostered a significant local area effect in terms of direct as well as indirect employment, emergence of new activities, change in consumption pattern and social life with qualitative change in terms of ensuring basic education and primary health facilities.

Q. Write a short notes on India’s Trade in Services.

Besides sound growth in merchandise exports in goods, India’s trade in services too has been notching up notable growth in recent years, thanks to the successful information technology(IT) exports in general and outsourcing of jobs by Indian IT industry in particular to the highly service-centric western world. In 2010-11, India’s services exports fetched a massive $132 billion even as services imports took much of the earnings, leaving a small net surplus in this account to help supplement goods exports earnings.

In sum, mandarins managing the foreign trade issue of the country in the Ministry of Commerce are quite optimistic that the slowdown in exports noticeable from October 2011 would get reversed from the figures of January 2012 till the end of the current fiscal, enabling the country to reach an export level of $300 billion for the year 2011-12. With Indian rupee value decelerating, the export proceeds for the current fiscal would not turn out to less than $300 billion, though the fortunes of the foreign trade front is uncertain for the next fiscal with global economic growth not exhibiting any discernible uptrend and the euro zone crisis still remaining a difficult nut to crack. Indian policy analysts are still quite hopeful that considering the fact that the rate of growth of exports which was minus 3.5 percent in 2009-10 and picked up to 40.4 per cent in 2010-11 with first eight months of the current fiscal running at 33 percent in dollar terms, the short to medium term prospects for India’s commercial engagement with the rest of the world would continue to be bright, barring any unexpected mishaps on the external sector.

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