The Ministry of Commerce and Industry recently announced that India has achieved its merchandise export target of $400bn in the current financial year. Despite Covid-related disruptions, such consistent export growth performance with an average of nearly $30bn over the last 12 months has fuelled India’s economic recovery. Exports have grown at a healthy average pace of nearly 65 per cent in FY22. While India’s exports have bounced back in FY22, accounting for almost 12.3 per cent of GDP from 10.8 per cent in FY21, there has been a consistent fall in the share of exports in India’s GDP in the past decade from nearly 17 per cent in FY12 to 12 per cent currently. India’s export strategy, going forward, needs a systematic approach to tackle supply-side issues plaguing its exports sector.
But, first, some facts. The World Bank Report (2018) on logistics cost in India pegs it at 14 per cent of the GDP, six per cent higher than most advanced economies of the world. However, India aims to bring this down to less than 10 per cent, which alone can lead to savings of nearly Rs 10 lakh crores. One of the main reasons for this higher cost is the slow pace of cargo movement at the ports. According to the Economic Survey 2021-22, the average turnaround time for freight at Indian ports is 2.6 days, much slower than the global average of one day (recorded in 2020). While domestic policies like the Narendra Modi government’s Production Linked Incentive (PLI) scheme, Remissions of Duties and Taxes on Exported Products (RoDTEP), and the much-awaited Foreign Trade Policy are expected to boost the export competitiveness of India’s manufactured goods, there is an immediate need to address some critical issues for long-term holistic growth for our exports.
Fast-track projects, become self-reliant
First and foremost is the need to fast-track the PM Gati Shakti-National Master Plan for multi-modal connectivity that aims to drive multi-modal synergies by bringing together 16 ministries, including the Ministry of Railways and the Ministry of Road Transport & Highways, for integrated planning and implementation of infrastructure projects. Templates from Japan, Germany, Korea, and Australia can provide some learnings. Creating a single-window transactional platform onboarding Logistics Service Providers (LSPs) — transporters, warehousing providers, freight forwarders, customs brokers, certification, regulatory agencies — and bringing them under one umbrella is the need of the hour. Simplifying documentation for export/import, a one-stop place for information for vendors, regulators, clearances, etc., and complete digital clearances on the platform will help reduce logistics costs significantly.
Second, India can also think of creating an Ocean Freight Index. China’s Shanghai Containerized Freight Index (SCFI) gives a fair sense of trade and business as most spot rates move in the range of the SFCI. Freights in India from various lines tend to fluctuate substantially on account of demand/supply and a lack of availability of information. Ocean freights are a critical component of the cost of exports. They have witnessed a massive surge in the recent past, due to which certain regions have gone out of reach for Indian exporters.
Third, India should take massive steps in creating self-reliance in shipping containers. Almost all the shipping containers used today are imported from China. By the time these containers reach Indian shores, they cost around 40 per cent more due to escalating costs like ocean freight, customs duty, custom house agent charges, other taxes, and sundry expenses. This has been even more apparent during the Covid pandemic, with container shortages leading to higher ocean freight — as high as 300 per cent in certain geographies. China’s monopoly in this space has further aggravated the situation. It makes about 90 per cent of global shipping containers. China International Marine Containers (CIMC) is the largest container manufacturer, with a market share of 40 per cent. The government and private players can collaboratively aim to manufacture shipping containers in India under the Atmanirbhar Bharat Abhiyan to boost exports and reduce costs for Indian exporters.
Look at state infrastructure, technology
Fourth, augmenting state infrastructure will be the key to boosting exports. Each state needs to understand its export opportunities and develop the proper infrastructure. For a country like India, which is vast and geographically diverse (with coastal states benefiting more than the landlocked ones), such bottlenecks must be addressed at the regional level with the support and supervision of the Central government. It is an important step to boost exports at the national level. In this regard, NITI Aayog’s Export Preparedness Index (EPI) 2021 is a vital strategy document. Its emphasis on a state-tailored approach should be considered seriously.
Fifth, digitalisation is the way forward today to compete with global players. However, it comes with its own set of complexities. Different shipping companies across the globe have opted for different supply chain platforms such as TradeLens or the MSC via Wave BL Platform. The banking system is not yet prepared to streamline itself with any of these platforms. This needs to be addressed to ensure timeliness in transactions. Digitalising/fast-tracking the issuance process of incentive schemes like the PLI or the RoDTEP is also a key step to boosting exports.
Sixth, many exporters also feel that India should consider reducing its monopoly on coastal shipments. Currently, it does not allow foreign liners for any internal/coastal shipments — that is, within the country. Dependence on only the local is a major bottleneck. Last but not the least, optimising the current modal mix (road-60 per cent, rail-31 per cent, water-per cent) in line with international benchmarks (road-25 to 30 per cent, 50 to 55 per cent rail, 20 to 25 per cent water) should be fast-tracked.
India’s share in global merchandise exports is a meagre 1.6 per cent, and a targeted long-term strategy on the supply side with its effective implementation is needed to enable the ease of exporting from India. With more policy support, the dream of India becoming an export hub is very much achievable and will be an important milestone in itself as we race towards a $5tn economy.
Prachi Priya is a Mumbai-based economist, and Aniruddha Ghosh (Twitter: @ani_econ) is a PhD student at Johns Hopkins University. Views are personal.
(Edited by Humra Laeeq)