Increasing role of states in India’s export growth

 Steven Philip Warner | The Dollar Business   Cutting across to the more serious end, I got a call from our administration department that there was no direct flight to Ludhiana. So I asked him to give me a connecting option. I had known of a few friends and associates from Punjab in the past – all of them making good money from exports, so my admin manager’s response to a connecting flight request was an unpleasant shock. He said, “There is no direct flight to Ludhiana!” I said “Ok” and enquired about the AI flight that I had known about. He clarified that even that flight from Delhi had now been withdrawn. The fact that me as a stakeholder in the foreign trade business of India cannot have a direct air connectivity with a district that is obviously the export champion of Punjab isn’t a happy one. Ludhiana’s share in Punjab’s exports touches 60% (2009 and 2010, as per the Department of Industries and Commerce, GoP), and that’s much more than double the share of Gujarat in India’s manufacturing exports last year. [That comparison with Gujarat was just to give you an idea of the relative importance of this district.] The district has over 100 large scale units, over 25 medium enterprises and close to 40,000 small scale units – no other district comes even close if I may say – and if Ludhiana doesn’t have “direct air connectivity to serve the purposes of exporters and decision makers for whom time is money”, we are seriously looking at a concern where a state’s booming district is being made to play a handicapped game. It’s akin to powerful Brazil without the no.10 Neymar. And I don’t want to talk about what resulted in the FIFA semi-finals against the mighty Germans. Obviously, we need to appreciate that Ludhiana doing good implies India doing great. The situation of Jalandhar – the second-largest exporting zone of Punjab is no different. The most recently updated state government records put Jalandhar’s share in Punjab’s exports at a little over 17%. And it has to rely upon Amritsar to cater to the needs of even its domestic travellers! Sounds unfair. I will divide my views in two parts – first that primarily talks about the Centre’s responsibilities and second that primarily talks about individual responsibilities of various States. Centre’s responsibilities The reason why I put these facts forward is because in the agenda that was forwarded to me, I saw that it began with this line: “States can play a major role in boosting India’s exports by providing the basic infrastructure, easy transportation including airport of international standards…” To be honest, it’s more about whether the central government, and by that I mean guardians of India’s foreign trade, desire an all-inclusive growth in exports in the country. The role and functions of the Central Government as contained in the various statutes extend to the matter of investment in airport infrastructure, clearance of greenfield airport projects, airspace management, bilateral air services agreements (including those involving international cooperation for modernization and upgradation of airports), licensing of airports and ATC personnel, environmental aspects and removal of obstructions around airports, etc. If it is infrastructural challenge we are referring to here as a roadblock, it is the Ministry of Civil Aviation at the Centre who has to work towards facilitating the speedy clearance from different Ministries for such green and brownfield projects. Going by what Ludhiana is faced with at present, I don’t think aspects like acquisition of private land and allotment of government land, supply of water and power, and provision of surface access through multi-modal linkages, etc., are really issues that are primarily hindering infrastructure growth in this respect. There are reasons – and for which it is important that the Centre decides to grow India’s exports in an “all inclusive” fashion. As far as the “infra” part of the agenda is concerned, and in particular airports-related, the story of Punjab is the story of many other states. Move east – it’s the same story with a state like Sikkim or even North Bengal. Lack of adequate infrastructure, delay to start even after completion, etc. etc., are all reasons for which we conveniently blame state governments. Tea exports, floriculture, tourism, and today a booming real estate market across two states – all of it is served by an IAF training base disguised as a government-run airport in Bagdogra. I presume you get the picture. If the two State governments alone could do, they would have by now. Clearly, centre’s intervention is binding. All claim that “It is imperative that all states shall understand the importance and relevance of exports in the growth of Indian economy and give proper focus and attention to exports, and declare it as a priority sector”. But easy to say. Last financial year, we missed our exports target by a dozen billion dollars – and I think that we have the potential to achieve far more than we have yet imagined. Our states can play a crucial role here. When we compare our export figures with that of China’s or Thailand’s, it becomes clear that a large and resource-rich country like us is nowhere near achieving its true potential. To change this situation, we need many efforts, one among them is certainly helping our states to achieve more exports individually. I say again – “helping our states achieve more”. Not imagining they can do much without a well-oiled mechanism that you can call a support system. And all this calls for much more than allocating a few crores to schemes that are approved under the ASIDE scheme or schemes like MAI and MDA. Firstly, it’s a case of support with responsibility and accountability. But for that, we need a process of accountability to start the process. A measurement mechanism is what has to come alive first. Measuring export potential at the state-level in India is a difficult proposition because, to start with, we do not have a process-based mechanism to find out India’s state-wise and regional exports data. Data regarding regional trade is at best inaccurate. Export data of regions are computed on the basis of the port data. If a product originating in a particular state is channelled through a port located in another state, the export figures for the originating state may be undervalued. The reason for this may be that the state of origin code is not filled in most cases by the exporters themselves but by some clearing agents for whom the origin of a consignment does not bear any significant importance. Thus states without a coastline or a major port may be at a disadvantageous position and their exports may be undervalued. Data in this respect is therefore sparsely found. And found for years that are least to say contemporary. Why do we have to wait for a senior official in the commerce ministry’s reply to a question raised in the Rajya Sabha to learn on which cluster of states outshone others? Why don’t we give each state’s commerce and industry department the accountability of reporting month-wise figures, be it with a month’s lag? Regular regional level meetings followed with submission of reports concerning appraisals of various schemes and export development programmes on a monthly basis will call for more sweat – but are mandatory. Difficult to implement, perhaps. But it won’t come easy anyway. Secondly, the government should focus on inclusive export growth – the growth of export sectors from different states of the country. Praising one state forever will not make India’s exports grow. There will be a limit reached, and when that happens, we will wonder why needs of different states were overlooked for a long time. While our export activities are still concentrated to some select fields and regions, there are many states which are comparatively lagging far behind, some even lacking the least amount of awareness, without which no infrastructural facilities, export incentives or policy measures can help. If you move to the popularly patented Darjeeling tea exporters zone, exporters in that area are completely unaware of various schemes that are available to boost exports. Do a field check. The Dollar Business did and that’s why we’ve decided to review one state each issue, starting the next issue. Scientific methods, be they theoretical to begin with, should be adopted to find the export potential of various commodities across States. A methodology like the Revealed Comparative Advantage (RCA) or Enhancement Factor Index (EFI). And the Centre has to encourage States to enable such implementation. Analytics is ubiquitous in the modern world. And even if someone were to complain that numbers only tell half the truth, but beginning with half of the truth is a good start. State’s responsibility Then we come to the States – it’s a clear case of needs for both an export policy and incentives to exports at the State level. A five-year export policy can be thought of for each state. If Gujarat has done it, others can too. That will also give each state a reason to double up on their key strength areas – so the state government can think of item-wise subsidies and incentives, mostly to tide over unfavourable supply side situations. A state-level export policy, a mechanism to measure exports from states, and review of targets should sort most complaints that we have in the forms of infrastructure, labour laws, etc. Around 8,000-plus km of coastline and 2.02 million sq-km of export economic zones in the country sound good. If there is centre-state cooperation, we can aim higher. Centre’s policies cannot be so specific, whereas the state policies are made as per the needs of the state. So you need simultaneous policies. Maybe other state governments can replicate Odisha’s act. In a bid to improve its share in the country’s export basket, the Odisha Government has proposed to introduce a new set of incentives for exporters from the State. The new State Export Policy, which is being finalised, recommends that an Export Development Assistance Scheme (EDAS) be floated along the lines of Market Development Assistance (MDA) scheme of the Central Government. Under the MDA scheme, export houses, trading bodies and star trading houses are provided assistance for market surveys, product development and participation in international trade fairs but MSMEs are not entitled to the assistance. Which is why the Odisha State Goverment has planned its own scheme. The EDAS policy also suggests export freight subsidy to the exporters to the tune of 50% of the cost of transportation to ports outside the State. Since Odisha ports do not have container facility, the exporters have to depend on Vizag, Kolkata and Haldia, that are cost-competitive in nature. Incentives ranging from exemption from VAT in some sectors to FMS and FPS to offset high freight cost and other externalities to select international markets and promote products with high-export intensity can be helpful. So if you take the case of bicycles and bicycle parts – Punjab supplies 90% of India’s exports in this category. And our bicycles are outpriced 20-30% by our Chinese counterparts. The Dollar Business did a study last month and found that bicycle exporters in Punjab are making money only from the 16.7% in export incentives (of which 11.7% is in the form of Duty Drawback). Imagine a margin of 10-12% after incentives of about 17%. Clearly, the state government can boost this product’s export potential (as India supplies just 1% of world’s imports) by offering additional FMS and FPS-related incentives and additional relief on imports of production material (with some export obligation and value-add floor) through state-customised schemes, like Odisha is trying.     Talk of Punjab, and you can’t forget the yarn and textiles industry that contributes to over 38% of the State’s exports. In 2013, India became the second largest yarn, textile (including readymade garments) exporter in the world behind China. Currently, India exports textiles worth $40.2 billion. So do we sit back and bask in the glory imagining that Punjab has achieved all that it can with such great figures of contribution to India’s textile exports or should we get a tad critical, yet positive and say that since India is just supplying under 5% of total global textiles exports, there is a further untapped export potential of $732 billion. So it is long before Punjab can be proud – let’s begin with some policy. How can we boost Punjab’s prime export machine? State-level support to enter newer markets, allowing duty scrips for the imports of speciality fabrics, pre and post-exports shipment export credit at a fixed rate, etc., can be considered by the State government to boost apparel exports. Doesn’t sound familiar because exports is after all a win-win case for the centre, right? This is the thought process that needs to be altered. And once that happens and all states realise the long term direct and indirect benefits from their contribution to India’s high growth in exports, we will have crossed the first mile in this issue. And all said and done, hopefully, Ludhiana gets a world-class airport soon.