India : Export prospect

As you read this, the Union Minister of Commerce, Industry & Textiles, Anand Sharma would have announced further incentives to boost India's export for the fiscal year 2011 as the date of announcement is scheduled on October 13. This would be in continuation of the incentives he announced on February 12 this year. However, this has left many to ponder over what those incentives might be and how far they would accelerate exports amidst economic crisis in Europe and the US!

The sharp cut back in the drawback rates for most exporting items coupled with volatile exchange rate has worsened the prospects of the Indian exporters. Additionally, tightening monetary policy and the high cost of credit have also become a matter of grave concern as it is making the Indian exporters less competitive globally. To top it up, exporters who have booked orders are now facing the challenges of hoarding up of orders and the weakening of rupee is just multiplying their plight. Further, the trade policies in various countries including the anti-dumping duty imposed by the US and the likes on various items coupled with falling demand in the traditional export destination i.e. the US and the UK (which accounts for 29 per cent of the total Indian exports) put together a pretty gloomy picture.

The production side of the story is also not much brightening. With an increase in labour-cost and power, the cost of production is also increasing, thereby increasing the price of the item leaving exporters with very little margins to remain competitive in the market.

However, the other issues hampering the growth of the export industry include the shoddy state of infrastructure, distribution network etc., which are not even addressed properly. Moreover, Indian ports are not equipped with adequate infrastructural facilities forcing the exporters to use the ports of neighbouring countries. According to figures revealed by the World Bank, this poor infrastructure is causing economic loss of nearly Rs.300 billion a year.

 “The government will be finalizing on what incentives and support can be there, in particular to the labour-intensive sectors,” - the minister enlightened. If this is an indication to go by, then we can expect a ‘financial incentive package’ for the exporters particularly for the labour intensive manufacturing sector. Further, interest subvention schemes might also be introduced this year. What the government needs to realize is that providing stimuli and subsidies is a mere short-sighted and a rather half-hearted attempt and would certainly not be the panacea for the ills that bedevils the state of exports and the state of the economy on the whole. These efforts might revive the overall export on the short term but in the long term it would add burden to tax payer and widen the Current Account Deficit! Perhaps, the government should focus more on product diversification, explore new markets and promote south-south trade to revive the great Indian export saga!