Infrastructure Deficiency is One of the Main Reasons for Exports Slowdown, says Dean of NBA Group of Institutions

In an exclusive interaction with The Policy Times, Amlan Ray, Dean of NBA Group of Institutions explains why is India’s exports performance dismal, how will GST affect business, where is the government going wrong and many more.

Infrastructure Deficiency is One of the Main Reasons for Export Slowdown, says Dean of NBA Group of Institutions

Amlan Ray is currently heading the education business of Jain TV Group. He is designated as Dean at NBA Group of Institutions, a training hub partner of Tata Institute of Social Sciences. He is an engineering graduate and MBA from University of Calcutta, currently pursuing PhD. He has an additional Masters in Economics. Amlan has 22 years post MBA experience with A.V. Birla Group, TATA group, Planman Consulting and Adamas University.

Amlan’s research interest deals with India’s Foreign Trade. He is particularly interested in India- ASEAN trade. Amlan is working with Firm Level Data to understand import content in Indian exports.

In an exclusive interaction with The Policy Times, Amlan Ray, Dean of NBA Group of Institutions explains why is India’s exports performance dismal, how will GST affect business, where is the government going wrong and many more.

Q. India’s exports performance has been dismal in the last couple of years. Though this is due to global factors, observers feel that India has not been able to take solid steps domestically. Why is international trade picture still grim today? Where has India gone wrong?

Answer: It is a matter of hope that recently Indian exports have rebound and it is again seeing the growth. Apart from Global factors India’s own deficiency in terms of creating infrastructure was one of the main reasons for slowdown in export sector. SEZs in India were not successful but there is no other alternative model created. All agree that India has more opportunities in Services but hardly there is any concerted effort. The Government after coming to the power, promised a new trade policy which got delayed and there is hardly any policy announcement which could bring cheers to the exporters. Regional trade agreements are an established mechanism for encouraging trade but India has inked so far very less number of RTAs. Except a free trade agreement with ASEAN, there is no other major trade agreement. South Asian Free Trade Agreement ( SAFTA) also never showed any significance in increasing trade in the region. India’s hope lies in Regional Comprehensive Economic Partnership ( RCEP) which can be one of the major trade blocks in the world.

Q. Experts feel that government may prune export target of USD 900 billion for 2020 when it unveils a mid-term review of India’s Foreign Trade Policy later this year. What should be the major policy focus in mid-term FTP?

Answer: Mid-term FTP should focus on services exports. We should think beyond IT and ITES in services. There is tremendous potential of Indian entertainment sector, travel and tourism, healthcare in increasing services exports from India. India should also look beyond the market of its traditional partners. Focus Africa can definitely give desired results.

Q. Though China is equally hurt by global export fall, China has been able to contain the challenge by focusing on alternative markets like Latin America and Africa for exports and boost domestic demands. Is there anything that we missed but China managed well?

Answer: It is not always fair to compare India’s exports with China. First of all, Chinese export is not only determined by market forces but Government plays an instrumental role in Chinese export. Chinese currency value is believed to be kept artificially low. Moreover, in manufacturing sector China has established its cost leadership which is beyond India’s capacity to reach. India should concentrate on services exports. As far as new market creation is concerned, China has definitely showed us the path how new markets like Africa and Latin America could be tapped.

Q. To make the matter worse, Industry feels that implementation of GST and additional cost of capital will further challenges for export competitiveness of Indian industry. How do you assess the immediate future?

Answer: India has a policy that we should only export our goods and services and not duties and taxes. The exporters will be eligible for CENVAT credit so GST is not a major concern though it may have some bearing on the exporters from SME sector in short run. As far as cost of capital is concerned, it is a perennial challenge for India. We have been observing that Reserve Bank of India quite rigid against lowering rates. One positive note is that India is able to attract good amount of foreign investment which will definitely help.

Q. While it is a fact that GST is a major reform, is India ready to adopt it? Why is tax rate going up while it should go down? Who will be affected and who will be benefitted out of GST?

Answer: GST is getting implemented after a consensus between majority of the states and due deliberation for a decade. It is a long due reform and should give positive results. As far as tax rates are concerned, it is in the hand of the policy makers to determine applicable tax rates. It is huge task to determine rates for thousands of commodities and classifying them into different categories. It is anticipated that manufactured goods will cost less post implementation of GST while service rates may go up. The overall effect will depend on how sensibly we classify different goods and levy GST,

Q. All these will also affect India’s growth rate at a time when we have recently lost the glory of being the fastest growing large economy. Where are we going wrong?

Answer: India’s growth rate will not be affected due to GST but there are various other factors that negatively affect India’s growth. In the last three years we have hardly seen any policy reforms. There is no long term effective policy whether for Industrial sector or for exports. Make in India remains largely a slogan. Reserve Bank of India appears least bothered about GDP growth. Even there are good amount of controversy on the actual GDP figure. Discrepancy factor seems to be large. Demonetization has affected both agriculture and small scale industry. It is bound to pull down the GDP figure. Loan waiver will actually not bring in any agricultural reform which can give booster to growth in agriculture sector. Demand of consumer goods will not go up till we are able to give purchasing power to the people. Without new job creation and increase in agricultural income, demand will not go up. Moreover GDP growth alone cannot be objective of an economy. Proper distribution of income should be the top priority of the Government. Inequality is going up in the country leading to social unrest. There are multifold challenges in front of India both in short term and in long term.

Q. Higher growth rate of India and China has been able to create mass employment and reduce poverty. This seems difficult now for India as India has created a few jobs. Where should India focus now?

Answer: Again I will reiterate that Chinese economy is a controlled economy and what is implementable in China may not be easy in India. There is question on the intent too. But China’s situation is also far from ideal. Gini Index (index for measuring inequality) has gone up in China. There is huge disparity between coastal China and rest. But still if we can achieve a fraction of China’s achievement in terms of poverty alleviation, it will be really good for Indian economy. Poverty alleviation will depend on the policy of government for distribution of income. Mere dole will not reduce poverty. We will have to create opportunities. Opportunity can be created by investment in education, rural infrastructure. Scheme like MNEREGA should be on the priority list of the Government for creating employment and livelihood.