India’s Foreign Trade: Need for accelerating pace

Dr BK Mukhopadhyay

(The writer, a noted management economist and an international commentator on business and economic affairs, can be reached at m.bibhas@gmail.com)

At the very outset let us have a quick look at what is recently happening in the foreign trade sector.

Exports from India increased 11.02 percent from a year earlier to USD 32.55 billion in March 2019, boosted by sales of organic and inorganic chemicals (16.98 percent), engineering goods (16.27 percent), RMG of all textiles (15.13 percent), drugs and pharmaceuticals (13.59 percent), and petroleum products (6.55 percent). Considering April to March 2018-19, exports rose 9.06 per cent to USD 331.02 billion from USD 303.53 billion in the same period of the previous fiscal year. Exports in India averaged 5520.43 USD Million from 1957 until 2019, reaching an all-time high of 32550 USD Million in March of 2019 and a record low of 59.01 USD Million in June of 1958.

Naturally, the challenge is to create exportable surplus (trade surplus referring to an excess of export receipts over import payments as compared against trade deficit which means an excess of import expenditures over export receipts measured on the current account and also known as merchandize trade deficit) and at the same time producing goods/ rendering services at the least comparative cost - so as to get a strong foothold on the international market in the face of intense competition.

Policy not bad, but just – satisfactory- implementation requires a closer look

IBEF nicely opined: India is presently known as one of the most important players in the global economic landscape. Its trade policies, government reforms and inherent economic strengths have attributed to its standing as one of the most sought after destinations for foreign investments in the world. Also, technological and infrastructural developments being carried out throughout the country augur well for the trade and economic sector in the years to come.

A close look at latest FTP [2015-20] will reflect its internal strength, practical nature and solid base in as much as it has touched virtually all of the vital wings. At this stage, the crying need is a close supervision so that some better things could still be done during the pendency.

Highlights of the Foreign Trade Policy 2015-20

* Increase exports to USD 900 billion by 2019-20, from USD 466 billion in 2013-14

* Raise India’s share in world exports from 2 percent to 3.5 percent

* Merchandise Export from India Scheme (MEIS) and Service Exports from India Scheme (SEIS) launched

* Higher level of rewards under MEIS for export items with High domestic content and value addition

* Chapter-3 incentives extended to units located in SEZs

* Export obligation under EPCG scheme reduced to 75% to Promote domestic capital goods manufacturing

* FTP to be aligned to Make in India, Digital India and Skills India initiatives.

* Duty credit scripts made freely transferable and usable for payment of custom duty, excise duty and service tax.

* Export promotion mission to take on board state Governments

* Unlike annual reviews, FTP will be reviewed after two-and-Half years

* Higher level of support for export of defence, farm Produce and eco-friendly products.

All out efforts a must

Actually, international marketing has emerged as targeted area of highest priority among the progressive nations globally. The international business expanded at a jet speed in the current decade especially – reasons mainly being rapid growth in technology, coming up of supportive institutions, openness of the different economies as well as increase in competition. Even minnows like Myanmar are now making foray into the energy sector in particular. Not only this, even a late comer country like Bangladesh has emerged to be our tough competitor in the field of ready-made-garments (for which sector even Russia is also now interested to learn) – making full use of its competitive advantage [viz. a country has a comparative advantage over another if in producing a commodity it can do so at a relatively lower opportunity cost in terms of the foregone alternative commodities that could be produced] in the arena of cheap labour.

At this very juncture the size and complexity of international business is required to be comprehensively weighed. It is very clear that international business, in the true sense of the term, is totally different from domestic business. While the latter is confined to national boundaries, the former spreads wings abroad. The former involves more complexities that are related to intra-firm-transactions and to unfamiliar host-country-environment – regulatory, economic and financial, political and legal, socio-cultural and many others. As international business is normally carried on in an unfamiliar environment it is rather imperative to get acquainted with the various types of environment in which such businesses are transacted – regulatory environment dealing the type of trade, FDI [Foreign Direct Investment – over sea’s investments by multinational corporations] regulations at the national and international level as well as the economic integration schemes in different parts of the globe.. Political, economic, legal as well as socio-cultural environment that differ from one country to the other influence such a business to a significant extent.

To be specific: international business essentially covers international transaction of economic resources as well as international production of goods and services and as such, the broad forms of business internationalization cover trade, technical collaboration and investment. Clearly, the heterogeneous environment influencing international trade is required to be scanned simultaneously with framing and implementing strategies so as to fulfil the basic objective of maximizing country’s wealth – both on the part of domestic and international enterprises. For the latter, this is more crucial because of the existence of far greater complexities – on this score situations being totally different between an industrialized country and a less developing country [viz. they are, in general, different in the EU compared to those in other industrialized countries]. Obviously, a lot depends on not only the financial strategies / the strategies that an international player adopts or should adopt, but also on the technological and production, marketing as well as human resources management aspects.

Yes: with the Government of India striking important deals with the Governments of Japan, Australia and China, among others, the external sector is increasing its contribution to the economic development of the country and growth in the global markets.

Can we reasonably expect that by implementing the FTP 2015-20, by 2020, India’s share in world trade is expected to double from the present level of three per cent??