India’s exports are facing multidimensional challenges due to increasing uncertainty, growing protectionism worldwide, and falling global demand. Heighten trade tensions have slowed down world economy, prompting the World Trade Organization (WTO) to slash its trade forecasts for 2019 and 2020 to 1.2 per cent and 2.7 per cent, respectively. On the other hand, IMF has cut global economic growth forecast for 2019 by 20 basis points to 3 per cent, noting that the global outlook remains precarious with a synchronised slowdown and uncertain recovery.

 

In September, India’s merchandise exports fell by 6.6 per cent (year-on-year) to $26 billion, the third contraction in six months, reflecting the impact of external headwinds. Exports during this fiscal have fallen 2.5 per cent to $159.6 billion. 

 

Despite being the world's fifth-largest economy by nominal GDP and the third-largest by purchasing power parity (PPP), India's share in global merchandise exports is below 2 per cent compared to China's 12.8 per cent. One of the reasons for low exports is India’s lack of competitiveness in many of the traded goods. 

 

Against this back ground, the Department of Commerce is currently working on the new Foreign Trade Policy (FTP) 2020-25 to give a boost to Indian exports - hit by sluggish global demand.  

 

With India likely to lose its trade dispute on the export promotion programme against the US, India’s trade-policy makers will have to overhaul schemes such as Export Promotion for Capital Goods (EPCG), the Merchandise Export Programme (MEIS) and Interest Subvention Scheme to make them compatible with the WTO rules. While overhauling, they will have to keep in mind the interests of SMEs, who are extensively using these incentives to offset high trade transaction and logistics costs.

 

The Department of Commerce is working a new scheme called the Rebate of Duties, Taxes and Levies (RoDTL). This scheme, which is already being implemented in the textile and clothing sector, has received a sharp criticism due to its bias towards specific components of textile and clothing value chains. For better impact, the benefits of RoDTL will have to be evenly distributed across the supply chain especially for sectors such as engineering, where value chains are highly dispersed and involve a wide variety of players with complex power dynamics.

With trade war between the US and China - the world’s two leading economies - likely to intensify in the near future, India should be ready to capitalise on the new opportunities. Sign of this was visible with India’s engineering goods exports to China going up to $176.94 million in August 2019 from $112.20 million in August 2018 with an increase of 57.70 per cent. The rise in shipments to China was contrary to overall decline of 8.92 per cent in India’s total engineering exports to global market at $6.35 billion during August 2019 ($6.97 billion), according to EEPC India.

 

As India re-draws its exports policy, in addition to providing incentives, the focus should be on moving up the value chain and finding ground in new sectors and regions. 

 

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