Govt must go for policy reform to bridge trade gap: ASSOCHAM

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Saurabh Gupta | 15 May, 2012
In the backdrop of increasing trade deficit, industry body ASSOCHAM has urged the Centre to take policy measures to boost exports.

ASSOCHAM president, Rajkumar Dhoot, while releasing the findings of a study on India's trade, Monday said, as exports face headwinds from the western economies, particularly in debt-ridden Europe, India's trade deficit may increase sharply by over 40 percent to USD 262 billion in the current fiscal.

Dhoot has suggested the government to go for all out domestic policy reforms. Whether it is Goods and Services Tax (GST), or Direct Tax Code (DTC) or banking sector reforms, not much time can be lost. These measures will boost confidence both in the domestic market as also for exporters as their transactions costs would come down making them competitive.

Suggesting the points, he urged to speed up Free Trade Agreement with the European Union. Exports of merchandise will get a boost in terms of getting improved market access in products like textiles, engineering, gems and jewellery.

Adding, he said, give concessional credit to exporters, improve the drawback rates so that taxes on raw material are not exported and improve trade and political relations with the neighbouring countries like Pakistan and Bangladesh. India can get increased market access at a lesser cost in terms of proximity of destinations.

"Support industry initiatives for aggressive marketing and organizing of trade and industrial exhibitions abroad," he added.

Speaking about the finding of the study, he said, "Out of the three likely scenario plotted by the ASSOCHAM study, the most likely seems to be the one where imports would grow by about 25 percent in dollar terms and exports increasing by about 15 percent. This would leave the country with a BoT gap of USD 262 billion.".

"In such a scenario, exports would grow up to USD 348 billion but import shipments would increase to USD 610 billion," said Dhoot.

In the fiscal 2011-12, the country’s merchandise imports totaled USD 488 billion against exports of USD 303 billion leaving balance of trade (BoT) of USD 185 billion.

The problem in terms of rising imports in dollar terms is expected to be worsened by the continuing pressure on rupee, which has lost well over 15 percent in value since September. Rupee would remain weak, if efforts on war-footing are not taken to make India an attractive investment destination both for the foreign direct investment (FDI) as also for the portfolio investment through the foreign institutional investors (FII) route, highlighted the ASSOCHAM study.

On the other hand, while the foreign direct investment (FDI) figures might look attractive in terms of growth, the base is so low that they do not mean much. In all, India attracted FDI of about USD 28.5 billion during April-February period of 2011-12 fiscal. The year-end figure could be in the range of USD 30 billion.

"Here too, potential areas which can catapult global investor confidence in India have remained on the back-burner due to lack of political consensus," said the ASSOCHAM chief.

The services exports largely generate business from the US economy, which is not showing definite signs of pick-up. Moreover, there are issues like protectionism and more and more road blocks being created in the export of Indian IT services to the US – be it visa fee hike or difficulties being faced by the Indian firms in getting short-term visas for their staff, he added.