- Mar 01 2017
It would be interesting to see how the new restructured Central scheme announced in the Union Budget for exporters and trading agents, and good on paper, unfolds in the coming days and what it holds in store for exporters and other trading agents
Indian exports are showing a downward trend since the past several years. Merchandise exports declined at a compound annual rate of 3.8 per cent, from $305.96 billion in 2011-12 to $262.29 billion in 2015-16. The constant poor export performance has alarmed policymakers who are devising strategies to reverse the trend. Rating agency Crisil remarked that the fall in Indian exports is not due to cyclical factors such as prices and world GDP growth, but due to structural (or infrastructural) bottlenecks that are internal to the country. Poor infrastructure at border check-points is one of the main obstacles for reviving Indian exports. A new scheme announced in the Union Budget for building export infrastructure at the state level, leveraging the Union Government’s support, is critical to expanding export activities.
The scheme,Trade Infrastructure for Exports Scheme (TIES), appears to be a re-packaging of an old one, the Assistance to States for Infrastructure Development of Exports (ASIDE), but with few additional features such as equal sharing of the cost burden (except for projects in the North-East and the Himalayan region States), creating modern export infrastructure in the form of common testing, labelling and packaging, and cold storage facilities at ports and custom check-points. Union Minister for Commerce Nirmala Sitharaman mentioned recently that around 50 per cent to 60 per cent of the Sanitary and Phytosanitary (SPS) measures (or norms on food safety and plant/animal health standards) and Technical Barriers to Trade (TBT) notifications issued by WTO member countries each month, can potentially impact India’s trade. Inadequate infrastructural facilities in the form of testing laboratories for these measures and standards, certification centres, etc at border check-points are the major source of transaction costs for most Indian export industries. Due to limited provision of testing facilities at the check-points, complemented by stringent rules and regulations and complex administrative procedures, exporters face procedural delays, resulting in high transaction costs for them. The high costs thus make Indian exports non-competitive in the global market.
There is an immediate need to improve export infrastructure, particularly port-related infrastructure which impacts the smooth transit of goods across borders. The development of port infrastructure is critical to improving efficiency of Indian exports. Ports in India handle nearly 95 per cent of the country’s total trade volume and about 70 per cent of the total trade value. The 12 major ports and 200 notified non-major ports in India are administered by the Union Government and State Governments and Union Territories respectively.
Since ports are key junction points, ensuring their connectivity with various other modes of transport (roads, rail and inland waterways) is essential. About seven major Indian ports including JNPT, Paradip, Tuticorn, and Haldia have four-lane road and double-line rail connectivity, whereas only six out of 61 minor ports (responsible for handling export-import cargo) have road and rail connectivity. This highlights that Indian ports, especially the minor ones, are plagued with the problem of last mile connectivity. Some minor ports do not have requisite roads or rail network to connect them with external hinterlands. Even those that have road connectivity, have narrow roads inadequate for containers/cargo movement. This makes these ports non-feasible and unattractive for transit by exporters. The poor quality of roads, including their load-bearing capacity, needs to be upgraded for faster flow of goods within the domestic territory as well as across countries.
Moreover, many ports and border check-points in India have poor support facilities in the form of intermittent Internet connectivity, absence of storage/warehouses, quarantine testing laboratories etc. The absence of quarantine testing facilities at the border causes delays as the products then need to be sent to nearby testing laboratories. For example, due to an absence of a testing lab at the Petrapole border, the samples of goods are sent to labs in Kolkata, which increases time and cost of trading for exporters. Additionally, poor Internet connectivity affects EDI (electronic data interchange) platform established at ports to facilitate trade across borders. The absence of storage units/ cold storage also creates problems, particularly for exporters of agricultural products (fruits, vegetables, grains).
About 20 per cent to 30 per cent of total food grain harvest is wasted due to inadequate storage facilities in India. The new scheme aims to bridge the existing infrastructure gaps, further boosting Indian exports. The special feature of the new scheme is that the Union Government would support State regimes financially as well as supplement their efforts to create necessary export infrastructure at minor ports.
The States are also requested to align their individual export strategy with the national policy on trade.Till date, around 17 States have submitted their export strategies, including potential products for exports, potential export markets, technical standards they have to conform to and their competitors in the global market.
The recent Budget allocation of about Rs 100 crore to the new scheme, TIES, is nearly double the amount allocated to the old one — ASIDE — before its delinking from the Budget in 2015-16. The enhanced Budget would be shared equally by the Centre and State regimes to build appropriate export infrastructure at major and minor ports in India. Since the details about the projects/activities to be financed under the new scheme are not out yet from the Ministry of Commerce, it is difficult to comment on whether the new idea would create a favourable trading environment for exporters and importers. However, a recent article released by Press Trust of India disclosed a few details about the projects to be covered under the new scheme. The Government would not get involved in areas such as road construction, power sub-stations or parking spaces under TIES. Rather, it would focus on infrastructure projects like border haats, custom check-points, last mile connectivity and cold storage at ports. Still, the scheme would certainly strengthen Centre-State relations by enabling equity participation between the two.
The Federation of Indian Export Organisations (FIEO) has remarked that TIES would require sufficient funding to make an impact in the trading environment. In this way, the scheme is likely to provide greater avenues to the private sector as well to cooperate with governments at Centre and State level and synergise efforts to build adequate export infrastructure at the ports and land custom stations. It would be interesting to see how the new restructured Central scheme unfolds in the coming days and what it holds in store for exporters and other trading agents.
This commentary originally appeared in The Pioneer.