Context: Textile and apparel exports contracted 14% in 2022-2023 compared with the previous year. At $41.3 billion in exports in 2021-2022, textiles and apparel constituted 9.79% of total goods exports. However, in 2022-2023, the segment recorded exports of $35.5 billion and constituted just 7.95% of goods exports.
Reasons for India’s Underperformance in Exports
- Low Level of Participation in Global Value Chains (GVCs).
- Limited diversification of India’s export basket: The top 10 principal exports in terms of commodity groups account for 78% of total merchandise exports.
- Low competitiveness of Indian products on account of:
- Lacklustre infrastructure.
- Complex land and labour laws.
- Fragmented and unregulated logistics sector.
- Inability to exploit comparative advantage in lower-skilled and labour-intensive exports: India has seen its share of world trade in textiles, garments and footwear decline in recent years while Bangladesh has almost caught up to India, and Vietnam has overtaken it.
- Regional Disparities: 70% of India’s export has been dominated by 5 states.
- Intra- and inter-regional disparities in export infrastructure as coastal states have performed extremely well compared to the landlocked states in developing export promotion parks and hubs.
- Poor trade support and growth orientation among states: There is an absence of strong support towards the exporters from many state governments in improving their quality or quantity.
- Poor research & development infrastructure to promote complex and unique exports curbing the innovative tendencies at the subnational level.
Why India Needs an Export-Led Growth?
Economic Survey 2019 has advocated an export-led growth model for India for reasons:
- Exports can help India to achieve the target of making India a developed economy by focusing on ‘Atma Nirbhar Bharat’.
- Economic Growth: Higher exports draw more foreign remittances, create more jobs and lower the current account deficit, creating demand and infrastructure.
- Major economies around the world are also major exporters. To corroborate this claim, it is to be noted that China is the world’s leading exporter of goods.
- Becoming a part of Global Value Chains: Exports give domestic sellers increased access to the market that helps in presenting a golden opportunity to capture a good chunk of global market share.
- Mitigate Regional Disparities: Improving the export competitiveness of states can mitigate regional disparities through export-led growth and the consequent rise in standard of living.
- The Economic Survey established that states which engage with the world markets as well as with the other states within the country are richer.
Initiatives to enhance trade
- Focus on Agricultural Products: Pro-active support of export promotion agencies including Export Inspection Council, Plantation Boards, and Agricultural and Processed Food Products Export Development Authority (APEDA), and export facilitating measures like online issuance of certificates required for exports, aided growth of agricultural exports.
- Interest Equalisation Scheme: This Scheme was formulated to give benefit in the interest rates being charged by the banks to the exporters on their pre- and post-shipment rupee export credits.
- Remission of Duties and Taxes on Exported Products (RoDTEP) scheme: The scheme seeks remission of Central, State and Local duties/taxes/levies at different stages at the Central, State, and local level, which are incurred in the process of manufacturing and distribution of exported products, but are currently not being refunded under any other duty remission scheme.
- Export Credit Guarantee: The Export Credit Guarantee Corporation (ECGC) supports Indian exporters and banks by providing export credit insurance services. ECGC provides insurance cover on the export consignment to protect exporters from the consequences of the payment risks. It also provides Export Credit Insurance to Banks (ECIB) to protect the Banks from losses on account of export credit given to exporters due to the risks of insolvency and/or protracted default of the exporter borrower.
- Krishi Udan Scheme: Krishi Udan Scheme was launched in August 2020 on international and national routes to assist farmers in transporting agricultural products so that it improves their value realisation. Krishi Udan 2.0 was launched in October 2021 enhancing the existing provisions, mainly focusing on transporting perishable food products from the hilly areas, North-Eastern states, and tribal areas.
- Trade Infrastructure for Export Scheme: The Scheme provides financial assistance in the form of grant-in-aid to Central/State Government owned agencies for setting up or for up-gradation of export infrastructure as per the guidelines of the Scheme
- Districts as Export Hubs – One District One Product (ODOP) Initiative: The Districts as Export Hubs-ODOP initiative is aimed at targeting export promotion, manufacturing, and employment generation at the grassroots level, making the States and Districts meaningful stakeholders and active participants in making India an export powerhouse The initiative is also aimed at fostering balanced regional development across all districts of the country. It seeks to select, brand, and promote products/services from each district of the country for enabling holistic socioeconomic growth across all regions, and attract investment in the district to boost manufacturing and exports.
Recommendations of High Level Advisory Group (HLAG) by Ministry of Commerce
- Has a profound influence on manufacturing. It will more significantly impact the relative competitiveness of exports. Tools like big data analytics, industry 4.0 must be leveraged.
- Financial support to industry
- Government should aim for an effective corporate tax rate of 18%. It should also bring down the cost of capital to an average of 10 best performing OECD countries.
- Enhance capital base of EXIM Bank and Export Credit Guarantee Corporation.
- Good Governance
- Promote evidence based policy making with a well structured Management Information System (MIS).
- Also, strengthen the investment promotion agency and build an overarching Trade Promotion Organisation.
- Identify Champion sectors
- This will help overcome challenges of infrastructural deficiency. 12 champion services present comprehensive potential to enhance GDP.
- Link into Global & Regional Value Chains
- Integrated approach towards trade in goods, services & investments requires a strategy of generally lower & simplified tariffs. Need to identify products & segments where Indian firms can integrate into GVCs.
- Use of World Trade Organisation: as part of its overall strategic vision
- Constitute inter-ministerial group to disseminate and evolve national official thinking on WTO related issues.
- Role of Regional Trade Agreements (RTAs) is crucial
- However, a comprehensive yet selective & inclusive approach is required.
- Launch 5 year program for negotiation of FTA – identified based on complementarity & sustainability.