New Foreign Trade Policy to Address Slowdown concerns of Exporters: Commerce Secretary

The ensuing Foreign Trade Policy will address the exporters’ concerns of slowdown in several key markets like European Union and Japan even as a lot of policy developments and diversification measures are being worked out to deal with the unveiling challenges of merchandise exports, Commerce Secretary Rajeev Kher said today .

Releasing Engineering Export Promotion Council (EEPC)’s India Strategy Paper for Engineering Exports, Mr. Kher said while a steep fall in engineering exports in October, after a good run in earlier months, came as a “shocker” to him, there is no room for pessimism as “a lot of policy developments....are happening. Besides, the focus on manufacturing is going to throw opportunities in sectors like Defence and Technology”.

He said the government is aware of the challenges being faced by the exporters in the backdrop of slowdown in EU, Japan and China, but the policy measures would target new markets like Africa, South East Asia and CIS countries. Mr. Kher emphasised on the value chain movement by exporters for staying competitive in the global markets. In this context, the liberalisation in the FDI policies underway would help exporters move up the value chain and help them gain scaling essential for the international markets.

According to the EEPC India Strategy Paper, India will need to ride on the back of the FDI inflows along with high-end technology particularly from large enterprises to boost engineering exports to just about double the country’s engineering exports to USD 126 billion by 2018-19.

India’s engineering exports in the year FY 2018-19 will remain between US$86 billion to US$126 billion from US$62 billion in 2014. “While the US$126 Bn aspiration might be considered aggressive in light of the current economic scenario but a number of factors give us reason to think otherwise,” the EEPC India paper done by consultancy major KPMG , pointed out.

Large foreign enterprises have important role to play in the development of innovation hubs in the nation. Often these enterprises become champions of innovation like Hewlett-Packard, Lockheed, and Google in the USA and Samsung and LG in South Korea. In order to create strong innovation hubs, the Government may attract large innovation oriented engineering firms to India, the paper said.

The India Engineering Sourcing Show (IESS), scheduled during December 16-18 in Mumbai will focus on the way Indian firms are adapting to technology and moving up the value chain. Besides, the presence of global companies at the IESS-IV presents great opportunities for the home grown firms to connect with the international businesses.

Foreign direct investment inflows not only provide capital but they also add to resources that can be invested in, bridge the gap between domestic savings and investments, generate employment and contribute to the exchequer in the form of taxes. Importantly by attracting top companies via the FDI route, one can adopt technology and best management practices thereby increasing productivity and output. In the Indian engineering context, it is seen that sectors which have attracted FDI have performed better than average. The paper recommended that an unambiguous environmental and pollution laws and time bound action for same clearance should be spelt out by the government.

It also suggested tax incentives to the expatriates for the export oriented units. This may attract expatriates of multinational engineering firms to work out of India.

The paper noted with concern that no significant reshuffle in terms of skill and technology intensity is observed in the Indian engineering exports basket over the years and India continues to be an exporter of products of low and medium skill and technology. Overall India has not performed well in product categories which require high technical know-how and skills, which is in line with Heckscher-Olin hypothesis which states that labour abundant countries produce and export more labour intensive goods and capital abundant nations manufacture and export more capital intensive goods. It can be seen from the average export and import volume data for the three year period from 2010 to 2012, that India exports more low skill and technology intensive products to USA than high skill and technology intensive products.

Sharing these concerns, EEPC India Chairman Mr Anupam Shah said, “Capabilities which are required to be developed are easy access to raw materials, cheaper raw materials, technology up -gradation and product innovation, lower logistic cost and better infrastructure, skilled workforce and favourable terms of trade to increase”.

The EEPC India-KPMG paper said India imports more high skill and technology intensive engineering products from Germany and China than it exports to these nations. China’s high skill and technology intensive exports to India are approximately fifteen times larger than India’s high skill exports to China (considering average volume for the period from 2010 to 2012).

[Source: PIB (MoC&I) Press Release dated 26^th November 2014]