Need a relook at trade, industrial policies for exports: DGFT

The export window is narrowing as most advanced nations have developed their aggressive policies like the US has its Inflation Reduction Act, CHIPS Act, the UK had its Advanced Manufacturing Plan and EU has its green deal, Sarangi said at a post-Budget webinar. More than 40% of India’s exports go to the US, the EU and the UK and apart from competition from domestic manufacturers in these markets, Indian exports would face increasing non-tariff barriers in these markets like the Carbon Border Adjustment Mechanism (CBAM).

Another reason for the review is that the share of manufacturing in India’s gross domestic product (GDP) has remained stagnant around 13-14% in the last five years and the sector lacks competitiveness. On the other hand, the share of manufacturing in China’s GDP is 26%, Thailand 25%, South Korea 24% and Vietnam 23%.

There is insufficient integration with global value chains, lack of scale, technology disadvantage and high import tariffs. On top of all this is the inefficient logistics. India’s logistics costs come to around 8-9% of GDP against 5-6% for advanced economies.

Apart from rising trade barriers and protectionism, India’s exporters face other disadvantages like low credit coverage, high interest rates, no scheme for remission of duties to service exporters, insufficient branding and market outreach. Export credit as a percentage of total merchandise exports is only 28.5 % or $124.7 billion as against the estimated requirement of $ 284 billion for total merchandise exports of $437 billion. Total export credit requirement is estimated for 2030 ($- trillion merchandise exports) will be $650 billion. Factors like high collateral demand, which sometimes exceeds 100%, inhibit credit flow to exporters.

“The Export Credit Guarantee Corporation of India (ECGC) extends a total insurance cover of only $44.9 billion out of a total export credit of $124.7 billion. Monopoly of ECGC has to be re-looked at,” Sarangi said. The government is framing schemes for MSME exporters to provide credit at easy terms, promote alternate financing instruments through strengthening factoring services for them, and offer assistance to deal with non-tariff measures imposed by other countries.

“The commerce, MSME and finance ministries are working on these schemes. These schemes are being formulated under the export promotion mission, announced in the Union Budget for 2025-26,” he said. The Budget has also announced the setting up of BharatTradeNet as a unified platform for trade documentation and financing solutions.