Big-bang reforms needed

K R Sudhaman

India had a share of 2.4 per cent in global trade at the time of independence. It dropped to a mere 0.7 per cent in 1991. The Narasimha Rao era balance of payment crisis forced India to change its economic philosophy. And it helped in opening up of the economy and India's two way trade.

P.V. Narasimha Rao India's two-way trade in goods and services might have reached $ 1 trillion, but business as usual approach will not help if we are to fully recover from the slowdown especially in merchandise exports.
What we need is a big-bang reforms to kick-start the export growth. Any delay will cost us dearly.
Now global trade is picking up after the world economy went into recession due to 2008 economic crisis, which is considered by many economists to have been the worst financial crisis since the Great Depression of the 1930s. It began in 2007 with a crisis in the subprime mortgage market in the United States, and developed into a full-blown international banking crisis with the collapse of the investment bank Lehman Brothers on September 15, 2008. It was followed by a global economic downturn. Happily, that phase is history today.
Global trade has started growing rapidly at 4.7 per cent. According to the International Monetary Fund, (IMF) global trade will grow impressively at around 4.6 per cent in the next couple of years. This has thrown up yet another opportunity for India. But the pick-up in India's exports is not yet visible even though merchandise has come out of the negative territory.The government really needs an out- of-the-box thinking to put back merchandise and services export back on high growth pedestal.
Widening trade deficit to a 56- month high at $16.3 billion in January this year has certainly raised concerns indicating all is not well in the trade sector. India missed the bus in early 2000, when it had an opportunity to become a global hub for manufacturing. China, which pushed reforms hard, was able to cash-in and become a global manufacturing hub.
Globally, India's share in goods exports is less than 2 per cent as against China's nearly 14 per cent. But in Services exports our performance is slightly better at around 3.5 per cent of world exports. Right policy and bigticket reforms should be carried out speedily so that we do not waste yet another opportunity that has come our way.
India had a share of 2.4 per cent in global trade at the time of independence; it dropped to a mere 0.7 per cent in 1991 because of inward looking policy of self-reliance, which allowed only the surplus to be exported. The Narasimha Rao era balance of payment crisis forced India to change its economic philosophy.
And it helped in opening up of the economy and India's two way trade in both merchandise and services zoomed to nearly $ one trillion annually from a mere $70-80 billion in 1991. This is not enough. More needs to be done to realise our true export potential.
H A C Prasad, who until recently was senior economic advisor in the finance ministry, has come out with two separate studies on the challenges and policy initiatives needed to take India's goods and services exports to a new high. He holds the view that there are green shoots in India's merchandise exports that is goods exports. So it is only appropriate to raise India's share to a respectable five per cent. For this India's goods exports should reach $882 billion by 2022, which means India's export growth rate must be around 27 per cent CAGR in five years. This is not an impossible feat sinceIndia has had much higher exports growth during 2004-09.
Services exports, which had gone up from $53 billion in 2005 to $162 billion annually in 2016, have done better than goods exports in the first half of 2017-18 at 16.2 per cent. Various initiatives have been taken by the government to push services exports but more needs to be done now considering that ill-effects of demonetization and rollout of Goods and Services Tax (GST) are behind us.
Prasad's mantra for export nirvana is simple. 'Make goods exports demand based and not supply based as at present', he says with some justification. In his considered view, there is also a need for 'Services from India' initiative like the 'Make in India' initiative to promote manufacturing exports.
In most top imports of the World, the presence of India is very small. In 2015, India's exports share in the top 100 items was not that impressive and only in 5 of those items, the share was more than 5 per cent. That's why there is need for making our exports demand based rather than supply based.
Likewise there is need for rationalizing tariffs. Though average customs duty is around 10 per cent, the real applied duty is around 2.8 per cent because various exemptions. This is creating distortions. However, the recent hike in customs duty on some electronics items waswarranted to promote Make in India. The move helped in reversing inverted pyramid customs duty structure that was hindering domestic manufacturing.
On ease of doing business, India has, no doubt, moved up in the global rankings but it has many miles to go before it can relax and rest. India is still way behind many ASEAN countries in trading across borders. Though the government claims to have put in place a single window customs clearance for exporters, there are still hurdles which needed to be crossed.
India is the cheapest and largest manufacturer of agri products, particularly fruits and vegetables, and yet its share of global agri exports is very small. It is one area where the government has to come out with an out of the box initiative so that India becomes not only a major exporter but also addresses the livelihood concern of farmers. There is a need to create an Ombudsman for resolving export-related problems and disputes.
Presently there is no clear cut dispute resolution mechanism.
On promoting services exports also, there is a need to reform domestic regulations so that these are conducive for exports rather than erecting restrictive trade barriers.
There are many market access trade barriers in India's trading partner countries; some of these relate to visas, shipping, licensing of professional services and so on. There is tremendous potential for disinvestment of PSUs - both central and state, particularly in the hotels sector.
When it comes to shipping, India should strengthen its domestic shipping industry including that of public sector.
On its part, the government should do two things. One, make shipments cheaper through domestic liners. Two, make it mandatory for domestic liners to carry bulk imports as well as some

On ease of doing business, India has, no doubt, moved up in the global rankings but it has many miles to go before it can relax and rest India is still way behind many ASEAN countries in trading across borders. Though the government claims to have put in place a single window customs clearance for exporters, there are still hurdles which needed to be crossed.

of the exports. The Government must quickly come to grips with another issue – upgradation of port facilities and connectivity. Even Colombo has a major trans shipment port, which is far superior to the best ports in India. Another added urgency for big bang exports is to end the present negative job growth rate. Almost 45 per cent of India's exports come from small and medium industries (MSMEs). It is a well known fact that small scale industries provide more employment than large industries. While Rs 1-1.5 lakh investment is required in MSMEs for creating one job, it is nearly 3-4 times more in large industries, which are by nature capital intensive. So boosting exports would not only improve forex reserves but also give a fillip to economic growth besides ending jobless growth.

(K R Sudhaman, a senior journalist, is a former Editor of TickerNews and Financial Chronicle)



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Narasimha Rao India's two-way trade in goods and services might have reached $ 1 trillion, but business as usual approach will not help if we are to fully recover from the slowdown especially in merchandise exports. What we need is a big-bang reforms to kick-start the export growth. Any delay will cost us dearly. Now global trade is picking up after the world economy went into recession due to 2008 economic crisis, which is considered by many economists to have been the worst financial crisis since the Great Depression of the 1930s. It began in 2007 with a crisis in the subprime mortgage market in the United States, and developed into a full-blown international banking crisis with the collapse of the investment bank Lehman Brothers on September 15, 2008. It was followed by a global economic downturn. Happily, that phase is history today. Global trade has started growing rapidly at 4.7 per cent. According to the International Monetary Fund, (IMF) global trade will grow impressively at around 4.6 per cent in the next couple of years. This has thrown up yet another opportunity for India. But the pick-up in India's exports is not yet visible even though merchandise has come out of the negative territory.The government really needs an out- of-the-box thinking to put back merchandise and services export back on high growth pedestal. Widening trade deficit to a 56- month high at $16.3 billion in January this year has certainly raised concerns indicating all is not well in the trade sector. India missed the bus in early 2000, when it had an opportunity to become a global hub for manufacturing. China, which pushed reforms hard, was able to cash-in and become a global manufacturing hub. Globally, India's share in goods exports is less than 2 per cent as against China's nearly 14 per cent. But in Services exports our performance is slightly better at around 3.5 per cent of world exports. Right policy and bigticket reforms should be carried out speedily so that we do not waste yet another opportunity that has come our way. India had a share of 2.4 per cent in global trade at the time of independence; it dropped to a mere 0.7 per cent in 1991 because of inward looking policy of self-reliance, which allowed only the surplus to be exported. The Narasimha Rao era balance of payment crisis forced India to change its economic philosophy. And it helped in opening up of the economy and India's two way trade in both merchandise and services zoomed to nearly $ one trillion annually from a mere $70-80 billion in 1991. This is not enough. More needs to be done to realise our true export potential. H A C Prasad, who until recently was senior economic advisor in the finance ministry, has come out with two separate studies on the challenges and policy initiatives needed to take India's goods and services exports to a new high. He holds the view that there are green shoots in India's merchandise exports that is goods exports. So it is only appropriate to raise India's share to a respectable five per cent. For this India's goods exports should reach $882 billion by 2022, which means India's export growth rate must be around 27 per cent CAGR in five years. This is not an impossible feat sinceIndia has had much higher exports growth during 2004-09. Services exports, which had gone up from $53 billion in 2005 to $162 billion annually in 2016, have done better than goods exports in the first half of 2017-18 at 16.2 per cent. Various initiatives have been taken by the government to push services exports but more needs to be done now considering that ill-effects of demonetization and rollout of Goods and Services Tax (GST) are behind us. Prasad's mantra for export nirvana is simple. 'Make goods exports demand based and not supply based as at present', he says with some justification. In his considered view, there is also a need for 'Services from India' initiative like the 'Make in India' initiative to promote manufacturing exports. In most top imports of the World, the presence of India is very small. In 2015, India's exports share in the top 100 items was not that impressive and only in 5 of those items, the share was more than 5 per cent. That's why there is need for making our exports demand based rather than supply based. Likewise there is need for rationalizing tariffs. Though average customs duty is around 10 per cent, the real applied duty is around 2.8 per cent because various exemptions. This is creating distortions. However, the recent hike in customs duty on some electronics items waswarranted to promote Make in India. The move helped in reversing inverted pyramid customs duty structure that was hindering domestic manufacturing. On ease of doing business, India has, no doubt, moved up in the global rankings but it has many miles to go before it can relax and rest. India is still way behind many ASEAN countries in trading across borders. Though the government claims to have put in place a single window customs clearance for exporters, there are still hurdles which needed to be crossed. India is the cheapest and largest manufacturer of agri products, particularly fruits and vegetables, and yet its share of global agri exports is very small. It is one area where the government has to come out with an out of the box initiative so that India becomes not only a major exporter but also addresses the livelihood concern of farmers. There is a need to create an Ombudsman for resolving export-related problems and disputes. Presently there is no clear cut dispute resolution mechanism. On promoting services exports also, there is a need to reform domestic regulations so that these are conducive for exports rather than erecting restrictive trade barriers. There are many market access trade barriers in India's trading partner countries; some of these relate to visas, shipping, licensing of professional services and so on. There is tremendous potential for disinvestment of PSUs - both central and state, particularly in the hotels sector. When it comes to shipping, India should strengthen its domestic shipping industry including that of public sector. On its part, the government should do two things. One, make shipments cheaper through domestic liners. Two, make it mandatory for domestic liners to carry bulk imports as well as some On ease of doing business, India has, no doubt, moved up in the global rankings but it has many miles to go before it can relax and rest India is still way behind many ASEAN countries in trading across borders. Though the government claims to have put in place a single window customs clearance for exporters, there are still hurdles which needed to be crossed. of the exports. The Government must quickly come to grips with another issue – upgradation of port facilities and connectivity. Even Colombo has a major trans shipment port, which is far superior to the best ports in India. Another added urgency for big bang exports is to end the present negative job growth rate. Almost 45 per cent of India's exports come from small and medium industries (MSMEs). It is a well known fact that small scale industries provide more employment than large industries. While Rs 1-1.5 lakh investment is required in MSMEs for creating one job, it is nearly 3-4 times more in large industries, which are by nature capital intensive. So boosting exports would not only improve forex reserves but also give a fillip to economic growth besides ending jobless growth. (K R Sudhaman, a senior journalist, is a former Editor of TickerNews and Financial Chronicle)