Seeking a thorough review of India’s trade –opening agreements like FTAs and PTAs, ASSOCHAM has said the country’s exports in 2016-17, would be reversing back to near about the level of 2010-11, making it imperative for the government to come out with a fresh strategy to stem continuous fall in exports.
With a 16-18 per cent contraction, exports will aggregate around USD 260 billion, a level quite close to USD 251 billion attained in 2010-11. “This is the lowest since the exports broke the USD 300 billion-mark for the first time in 2011-12 with USD 306 billion”, the ASSOCHAM said, giving a feedback to the Rajya Sabha for Examination of Demand for Grants for the Ministry of Commerce and Industry for 2016-17.
Dropping for the 15th month in a row, cumulative value of exports for the period April-February 2015-16 was USD 238.42 billion as against USD 286.30 billion registering a negative growth of 16.73 per cent.
“How severe is the situation can be gauged from a possibility that it would take another few years, maybe not before 2017-18, before we retrieve the export levels achieved 2011-12. That would be a seven-year reversal,” ASSOCHAM Secretary General Mr D S Rawat said, impressing on the government that while the external sector would remain challenging, new game plan including review of the Free Trade Agreements (FTAs) and Preferential trade Agreements (PTAs) should be devised.
India has signed many trade pacts, more for geo-political reasons rather than commercial reasons. One case is the South Asian Free Trade Agreement, which has not resulted in any significant export gains. India’s trade deficit has widened with the ASEAN. Further, most of India’s preferential trade agreements (PTAs) are shallow in terms of product coverage. For example, the India-Mercosur PTA doesn’t include textiles and apparel items, which face prohibitive import duties of up to 35 per cent.
India’s pharmaceutical exports have not benefited from tariff reductions under the India-Japan CEPA, mainly because it’s too cumbersome to deal with Japan’s drug regulator. Japan allows the duty free import of apparel from India only if all of the raw materials used are of either Indian or Japanese origin, with an exception of 7 percent content by weight that can be sourced from third countries. No surprise, the utilization of India’s PTAs for export promotion remains very low.
India’s trade pacts have exacerbated inverted duty structure – high import duties on raw materials and intermediates, and lower duties on finished goods – that discourage the production and export of value-added items. Thus, apparel can be imported into India duty free while its raw material –manmade fibres attract an import duty of 10 percent. That makes little sense. Similarly, finished products such as laptops or cell phones can be imported more cheaply than all their parts (imported) separately because of duty inversion
Despite all attempts at diversification, India’s merchandise exports have a narrow base, with the top 20 categories accounting for four-fifth of the total exports. Even in top export categories like textiles, India is exporting low value commodities such as cotton yarn or apparel rather than technical textiles.