How India can punch above its weight in global trade

Economic Times, May 25, 2023

By Pradeep S Mehta & Abhishek Manu Singhvi

There needs to be a conscious effort to shape the public perception of international trade in India. This requires going beyond the nuts and bolts of foreign trade.

Despite poor projections on the slowdown in international trade, India has set itself an ambitious target of achieving $2 trillion exports by 2030. For this, India needs to cultivate an overall narrative of trade optimism that goes beyond just the numbers. By astutely combining narrative and numbers, India can punch above its weight in global trade.

Improving export performance in both capital-intensive and labour-intensive sectors, facilitating imports of essential items and enhancing levels of competitiveness also link to larger issues like integrating with global value chains (GVCs). But the nitty-gritty is always important. As Thomas Hardy put it, ‘If you take care of the small things, the big things take care of themselves.’

Trade deficit:
Growth of imports vs the growth of exports has been similar across the last 10 years. In 2012-13, India’s total deficit in goods trade was $190 billion, which grew to $247 billion in 2022-23. In the shorter term, it needs the promotion of exports and the control of non-essential imports. In the longer term, domestic manufacturing of those items that we can rely on needs to be encouraged.

Export incentive schemes:
In the very same breath we talk of export promotion, there is a contradictory diminution in export incentive schemes. Industry associations say that incentive schemes that have proved their worth are being diminished or affected. That is not a good way of either increasing exports or curbing non-essential imports. The new Foreign Trade Policy (FTP) has addressed some of these issues. But much more needs to be done.

As a consequence of lack of coherence, logistics is a major cost-enhancer. Fortunately, GoI has established GatiShakti, an overarching, interdisciplinary, cross-sectoral single-window approach, which coordinates various agencies to expedite and reduce logistics cost. But its full effect has not yet translated to the ground in significant reduction of costs.

The gap between the growth of demand and availability is 30-40%. Some estimate that there could be 64% growth in demand while the actual availability is 25-30%. Dearth in availability of containers is a major bottleneck. One of the Aatmanirbhar verticals should be simply to set up manufacturing of containers, and a production-linked incentive (PLI) scheme should be applied here in a big way.

Free trade agreements:
In the capacity of the manufacturing and export ecosystem for MSMEs, integration with FTAs is not being done. MSMEs are laggards and suffering in this regard. Focus has to increase on tailoring the commitments under FTAs – looking at countries of particular interest by ‘friendshoring’. Industry associations have also suggested, with concrete data, that dissemination of information regarding standards and certification requirements involved in FTAs is very poor and suffers from a huge information gap.

Intellectual property financing and leveraging:
There are entities that are low on asset value but rich in possession of valuable IP assets. They cannot leverage it sufficiently as security or collateral for lending in financing. There should be a special focus on using IP assets to enhance collateralisation and securitisation for financing purposes.

In particular, startups and SMEs who have this asset suffer more because they do not have the traditional fungible assets available to non-SMEs and non-startups. Given the great push to startups by GoI, this concomitant push in terms of creating a funding mechanism within our financial ecosystem to recognise these in the first place, and then start acting aggressively on financing and collateralisation, would be very useful.

There needs to be a conscious effort to shape the public perception of international trade in India. This requires going beyond the nuts and bolts of foreign trade. Such narrative-building exercises, while portraying an accurate picture of the data, also require engaging with what people already believe, or want to believe, about trade liberalisation and globalisation.

The messaging and engagements with trade stakeholders must, therefore, highlight both the potential economic opportunities and threats. Ultimately, trade-related domestic anxieties can only be addressed by more frank, frequent and better-informed consultations with a wide range of stakeholders. This requires a structured approach.

At every level, we need to ensure coherence and clarity in India’s messaging on trade and speak in one voice. The High-Level Advisory Group (HLAG) report presciently stated that ‘our future is not to return to the protectionism of the past but to create the competitiveness for the future’. This will lie at the heart of realising the full potential of international trade for India’s economic development.

Singhvi is Congress Rajya Sabha MP, and chairman, Parliamentary Standing Committee on Commerce, and Mehta is secretary general, CUTS (Consumer Unity and Trust Society) International

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