Export Promotion in India: Today’s Talk on Editorials
Significance: The Commerce and Industry Ministry is mulling incentives for states which play a proactive role in promoting exports as it will help boost economic growth. Such a proposal was brought in the third meeting of Council for Trade Development and Promotion.
How the world became export dependent?: Interdependence of countries has increased considerably after World War 2. Developments in international transport and telecommunications caused the shrinkage of the globe. Liberalization and globalization brought substantial and sustained expansion in world trade. India has become of W.T.O. and chosen the policy of globalization voluntarily. Another important factor in increasing interdependence between the countries is the transnational or multinational corporations which engage in international production. Increased labour flows between countries also contributed to interdependence.
India’s targets with exports: India has trade relations with more than about 150 countries and deals in thousands of goods and services. India’s share in the global trade is about 1.7 % as opposed to the targetted 5% share of global trade. There are many problems and limitations like lack of standardization and better quality of exported goods, procedural delays, bureaucratic red-tapism, confusing policies, archaic rules and regulations made and implements, lack of professionalism etc. that hamper export culture in India.
According to the second part of the Economic Survey for 2016-17, exports need to grow at 26.5 percent annually for the next five years for India to reach a respectable 5 percent share in world trade from the existing 1.7 percent it has been stuck at since 2011.
Role of Exports in Economic Development: Economic development is largely affected by a number of economic and noneconomic factors. Among the economic determinants of growth, we can include the savings rate, the expansion of exports, the process of import substitution and the inflow of foreign capital as the most important factors for economic development.
- Input materials: Trade and exports provide the material means like capital goods, machinery and raw materials, semi-finished materials etc. which are indispensable for economic development and these are important factors of production. Some of the countries and governments use restrictions in exports to control the export of unprocessed raw materials hoping that this will promote local downstream industries. For example, restrictive export promotion policies are used by four minerals-rich African countries. They impose measures like high export taxes, non-automatic export licensing requirements and outright export bans.
- Human Resource Development: Trade and exports play a crucial role in being an important source of technological knowledge, managerial talents and entrepreneurship. Entrepreneurial, export-led development is likely to produce higher economic growth rates than inward-looking development. For example, the role of software export entrepreneurship in India and Taiwan act as a model for other sectors and for the formulation of government policy. Companies that export into foreign markets generally gain new knowledge and experience that may allow discovery of new technologies, marketing practices and insights into foreign competitors.
- Capital Transmission: Trade and exports play an important role in the transmission of capital. International Trade is the exchange of capital, goods, and services across international borders or territories. In most countries, such trade represents a significant share of gross domestic product (GDP). The key concept behind capital flows is the balance. For instance, a country can have either a positive or negative capital flow depending on the performance of export and import of a country.
- Competition: Trade and exports bring an atmosphere of healthy competition by checking monopolies and restrictive trade practices. For example, India is having competition with China in several products starting from apparel and footwear to steel and chemicals. China could limit the growth of commodity-exporting nations as well as Asean, Japan and Korea and could also limit the overall demand for Indian exports by indulging in unfair trade practices.
An expanding export trade is a dynamic factor in a country’s development process. Foreign trade has worked as an ‘engine for growth’ in the past and even in more modern times the outward-oriented growth strategy adopted by the Newly Industrializing Economies of Asia, viz. Hong Kong, Singapore, Taiwan and South Korea has enabled them to overcome the constraints of small, resource, poor underdeveloped economies. Foreign trade contributes to economic development in a number of ways. First, the primary function of foreign trade is to explore means of producing imports of capital goods, without which no process of development can start. Second, it is a means to price stability. The demand-supply imbalances, which are likely to be severe in the initial stage of growth, can conveniently be connected through the mechanism of foreign trade. Thirdly, it generates pressures for dynamic change through competitive pressures from imports, the pressure of competing for the export market, and a better allocation of resources. Exports allow fuller utilization of capacity, increased exploitation of economies of scale and separation of production pattern from domestic demand.
Export Promotion Measures:
The principal objectives of the export promotion measures are to:
- Compensate the exporters for the high domestic cost of production.
- Provide necessary assistance to the new and infant exporters to develop the export business.
- Increase the relative profitability of the export business vis-à-vis the domestic business.
The government has established or sponsored a number of organizations to provide different types of assistance to the exporters. The Ministry of Commerce, Government of India, is the most important organ concerned with the promotion and regulation of foreign trade in the country. Autonomous Bodies like Commodity Boards, Export Inspection Council, Indian Institute of Foreign Trade, Export Promotion Council etc. also perform both advisory and executive functions.
Credit guarantees through institutional finance mechanisms are also vital for export promotion in India. Export-Import Bank of India was set up in 1982 for the purpose of financing, facilitating and promoting foreign trade in India, is the principal financial institution in the country for coordinating working of institutions engaged in financing exports and imports. They aim at granting of loans and advances in India solely or jointly with commercial banks to persons exporting or intending to export from India goods, handling transactions where a mix of government credit and commercial credit for exports is involved etc.
Export houses play a very significant role in foreign trade. They act as importing agents in the country of the exporters. They act as intermediaries between the importer and exporter. They purchase the goods according to the instruction of
the importers and export them.