Finding new markets for growth

Against the backdrop of country’s export witnessing declining trend consistently for the last 10 months on account of unprecedented global slowdown, the government has unveiled the new Foreign Trade Policy (FTP) 2009-14 rolling out the roadmap for stimulating the growth momentum of export over the next five years.

Given the current economic climate, which has been compounded by the worst over global recession in the post-war period, the formulation of an effective trade policy to accelerate the export growth rate on a sustained basis, is no doubt a daunting task.
The prime reason why export occupies a pivotal role in the overall economy of a country of India’s size and dimension is that export is increasingly assuming importance as an effective instrument of economic growth and employment generation. A critical scrutiny of the new FTP reveals that its basic tone and contours have been primarily guided by the objective of how to neutralise the ripple effect of the current declining trend in export due to contraction in demand in country’s traditional markets like the U S, the European Union countries and Japan, which have been severely hit by the ongoing global slowdown. As the Commerce Minister Anand Sharma says “we cannot remain oblivious to declining demand in the developed world and we need to set in motion strategies and policy measures which will catalyse the growth of exports.”

The immediate objective the new FTP, as the Minister says, is to arrest and reverse the declining trend of exports and to provide additional support, especially to those sectors, which have been hit badly by recession in the developed world.   
   
While the new FTP seeks to achieve an annual export growth of 15 per cent over the 2010-11 with an annual export target of 200 billion dollars by March 2011, in the remaining three years the country should be able to come back on the high export growth path of around 25 per cent per annum.

“By 2014 we expect to double India’s exports of goods and services. The long term policy objective for the government is to double India’s share in global trade by 2020,” says Sharma.

Multi-pronged strategy

Keeping these objectives in mind the FTP has sought to provide a policy environment through a mix of measures including fiscal incentives, institutional changes, procedural rationalisation and efforts for enhanced market access across the world and diversification of export markets.

Significantly, the FTP while continuing all the ongoing incentive schemes for exporters announced under stimulus schemes, rolled out a new export promotion strategy focusing on tapping new markets and product diversification.
In fact, the FTP in the face of country’s export getting severe jolt due to shrinkage of demand in traditional markets like the U S, European Union countries and Japan, has sought to provide special incentives on exports to untapped markets in Latin America and Africa.

The FTP has identified 26 new markets for market that would be eligible for incentives. These include 16 in Latin America and 10 in Asia and Oceania.
As Sharma says “We have taken a conscious view to expand and diversify our export markets, especially in the emerging markets of Africa, Latin America, Oceania and CIS countries. The government will offset disadvantages that exporters might face in these new markets.”

As the Commerce Secretary Rahul Khullar says diversification of Indian exports is the overall theme of the policy.

The FTP while seeking product diversification to expand country’s export basket listed a large number of products from various sectors that would be eligible for benefits under Focus Product Scheme (FPS).

These include engineering products, plastics, green technology products like wind mills, wind turbines and electric operated vehicles and certain electronic items.

Geographical diversification 

Significantly, the FTP has vastly expanded the list of products that would be eligible for getting benefits under the Market Linked Focus Product Scheme (MLFPS). These include pharmaceuticals, synthetic textile fabrics, textile made-ups, knitted and crocheted fabrics, value added plastic goods, glass products. Benefits to these products will be provided if exports are made to 13 identified markets. These markets include selected African countries, Brazil, Mexico, Ukraine, Vietnam, Cambodia, Australia and New Zealand. The FTP also seeks to extend MLFPS benefits for export to additional new markets for certain products. These include auto components, motor cars, bicycle and its parts and apparels.
Trade experts and analysts overwhelmingly feel that the FTP has sought to impart a new dimension to country’s trade expansion strategy by identifying new markets and diversifying the export basket. As Ficci Secretary General Dr Amit Mitra—a noted economist—says “the FTP has distinctly sought to impart new dynamism into export promotion by identifying promising new markets and diversifying export basket.” But at the same time analysts feel it will be a real challenge for Indian exporters to make a dent in these new markets.

“FTP focus on identifying new market is a refreshing idea. But one must realise that it is not that easy to make a foray into new market. You need necessary logistics to create demand for Indian products in new emerging markets. Here government has to play a major role,” a senior functionary of the Federation of Indian Exporters Organisation (Fieo) said.  Significantly, the FTP while seeking to address the credit requirements of the exporters, who are currently facing resource crunch to push forward export, pledged to meet the Dollar credit needs of exporters in “a timely manner” to boost export.
“This is a good move on part of government to meet the dollar requirements of small and medium exporters, who otherwise face difficulties to raise funds to meet their export orders,” says CII Director General Chandrajit Banerjee.   

The other highlights of FTP that has caught the attention of trade and industry is the unveiling of series of tax sops to bail out exporters currently being hit by contraction of demand in most of India’s major trading partners.

Sops to exporters

In a bid to encourage exporters to go for technological up-gradation to boost their global competitiveness the FTP allowed duty free import of capital goods for certain sectors up to March 31, 2011.

Experts feel promotion of technological up-gradation, which in real term can bring about cost effectiveness in manufacturing process, can sharpen the competitive edge of Indian exporters.  “Given the current state of global recession enhancing competitiveness is the need of the hour,” feels noted industrialist and Assocham President Sajjan Jindal.
But trade experts say given the massive potential of services sector, which is fast emerging as the sun-rise segment in India’s export basket,  the new FTP should have given more focus on this newly evolving sector.  In the services sector a road map of specific policies needs to be drawn not only to overcome the impact of the current global crisis, but also to accelerate the growth of the economy and total exports, as this sector has been showing a steady and promising performance with relatively lesser support compared to merchandise sector.   Streamlining many of our domestic regulations like licensing requirements and procedures, technical standards and regulatory transparency can help in the growth and export of services.

Similarly, negotiating the streamlining domestic regulations in India’s major trading partners could help in increasing country’s market access. These along with policies like marketing of services including services in negotiations with different countries and bilateral trading arrangements and successful services negotiations in World Trade Organisation could immensely boost country’s overall export.


DH News Service