Professional Documents
Culture Documents
for the
Department of Commerce
Submitted by
Jayant Dasgupta
&
Depinder Singh Dhesi
January 7, 2011
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Table of Contents
Page
and Functions
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SECTION- 1
1.3 The Mission of the Department outlined in the Foreign Trade Policy
(2009-2014) and the RFD is to double India’s exports of goods and services
by 2014 in the medium term along with doubling India’s share in global
trade by 20202 as a long term goal, through appropriate policy support. The
Department is targeting an annual growth rate of exports of 25% during the
period 2011-12 to 2016-17 to achieve these twin targets3.
1
Annual Report (2009-10) of the Department of Commerce, Government of India, New Delhi
2
Foreign Trade Policy (2009-2014) and Results Framework Document of the Department of Commerce,
Government of India, New Delhi
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Strategic Plan (2009-10), Department of Commerce, Government of India, New Delhi
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areas like machinery and transport equipment (accounted for 37% of global
trade between 2003-07), chemicals, pharmaceuticals and agro-products etc.
(iv) Steps would be taken to conclude our ongoing Free Trade Agreement
(FTA) negotiations and to conclude the Doha Round negotiations, which
would provide additional market access for our goods and services. Non-
tariff measures (NTMs), which adversely impact exports, would be
addressed both through the FTAs as well as the WTO.
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(viii) Protecting sensitive sectors of the Indian economy against the
adverse impact of trade liberalization.
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SECTION- 2
2.1.2 The second factor impacting upon exports is the state of the global
economy. India’s exports, which recorded an average annual growth rate of
23.9% during the period 2004-05 to 2008-09, came down to 13.6% in 2008-
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09 and showed negative growth during 2009-104. The economies of the EU
and the US, which are still our major markets, have not recovered
completely from the economic downturn. Unemployment levels are still
quite high in these countries, leading to contraction in demand for consumer
goods. The EU has had to rescue Greece and Ireland from their sovereign
debt problems in 2010 and the US has had to unfold a $600 billion package
by way of Quantitative Easing 2 a few months ago to continue with its
stimulus to the economy. The net result is that consumer spending in these
countries is still low and luxury or gift items are not being purchased as
much as in 2007. This has affected the exports of many of our traditional
items like gems &jewellery, handicrafts and carpets. It has also impacted
upon our textiles and clothing exports because consumers are now more
likely to defer purchase of non-essential items.
2.1.3 Another fall-out of the economic downturn has been that investments
in the developed countries have come down, resulting in a contraction in the
demand for engineering goods, which is the largest sector of our exports
currently.
2.1.4 Our traditional strengths in exports have been our comparatively low
wages (steel forgings and castings, powerloom fabrics), our skilled workers
(carpets, gems& jewellery, clothing), low cost of primary raw materials
(cotton, tea, coffee, rubber, iron ore, hides and skins), low import intensity
of raw materials (except rough diamonds) and low energy intensity of our
export products (handicrafts, hand-knotted carpets, gems & jewellery,
embroidered clothing). The typical Indian export oriented industry worker,
most likely illiterate or non-matriculate, is intelligent, skillful, innovative
and able to absorb and carry out instructions well. He is, however, saddled
with a high morbidity burden and is most likely working on piece rate basis
in the unorganized sector, staying away from his family and living in low
rental housing in slum like surroundings.
2.1.5 With our rising wages, low levels of mechanisation and productivity,
infrastructural bottlenecks and comparative lack of product development and
4
Annual Report (2009-10), Department of Commerce, Government of India, New Delhi
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innovation, our exports have grown at a rate far lower than that of China or
the other East Asian tigers in the nineties. Unless we are able to break out of
this mould and provide products of greater technological sophistication and
variety at globally competitive rates, it might be difficult to make a
significant difference in our export performance in the years to come.
Strengths
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Weaknesses
Corruption
Opportunities
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Threats
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SECTION - 3
3.1.1 India’s exports of goods and services in 2009 were $ 155 billion and $
86 billion and its share of global trade was 1.2% and 2.6% in goods and
services respectively5. Including intra-EU trade, India’s standing was 22 and
12 among the world’s leading exporters of goods and services.
3.1.3 As regards Services, the projections indicate that global trade would
increase to $5050 billion and $8060 billion in 2014 and 2020 respectively, in
which India’s share would be 4.42%($223 billion) and 8.1% ($653 billion).
3.1.4 Thus the secular growth projections would appear to indicate that
India should be able to meet its twin export growth objectives for 2014 and
2020 respectively. However, there are some major caveats to this, which are
discussed below. Before we proceed to discuss them, however, it would
be pertinent to point out that there are some gains to be made if we
align the timelines for meeting our objectives, to coincide with the 12th
Plan period (2012-17). This would be especially relevant for the areas
where inter-departmental coordination and joint efforts are required. It
is for the Department of Commerce to take a call on this issue.
5
World Trade Report 2010, World Trade Organisation, Geneva
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Unpublished joint report of the Centre for WTO Studies and FIEO, December 2010
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3.2.1 At present, engineering goods, gems & jewellery and textiles &
clothing account for 19.8%, 17.8% and 11.3% respectively of our exports
basket. Petroleum products account for another 13.8% of our exports. The
value addition in gems & jewellery exports is low at present, because it is
mainly concentrated in the diamond polishing business. However, with
better design inputs and product innovation and diversification, we can
increase our exports in this sector.
3.2.2 Similarly, there are natural limits to growth in the traditional products
of our textiles & clothing sector because of the structure of our industry (still
mostly in the small or unorganized sector) and our rising wages. Lower cost
producers like Vietnam and Bangladesh have already overtaken us in textiles
and clothing and we can only improve our position in this sector if we move
up the value chain by establishing brand names and designer labels as well
as venturing into the production of hitherto non-traditional items like men’s
and women’s business suits for example.
3.2.3 In the case of the leather sector, which provides employment to lakhs
of workers, our exports are mainly confined to exports of finished leather,
men’s shoes, garments and accessories. We have negligible exports in
children’s and ladies footwear as well as non-leather footwear, which
together account for more than 80% of global trade. There is tremendous
scope for improving our position in leather products and non-leather
footwear exports, provided we take the right policy initiatives.
3.2.4 It is most unlikely that we would be able to double our exports in the
medium term by just producing “more of the same”. It appears imperative
to have a paradigm shift in our manufacturing and exports strategy, so
as to move onto a different growth path. For this, we have to significantly
diversify our product basket in addition to putting in efforts to produce
higher value added products in our traditional exports sectors. The new areas
in which we could provide a thrust could, for instance, include engineering
goods, chemicals and pharmaceuticals (including biosimilars), electronic
goods, agro-products etc.
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3.2.5 In order for us to move up the value chain, we would need to : (i)
provide R&D and state of the art testing facilities (ii) marketing support
for thrust sectors and countries, (iii) attract foreign investments and
technology through further liberalization of our investment regime and
schemes like the Special Economic Zones and (iv) build up a brand image
of quality and reliability for India, through use of the India Brand Equity
Fund and other appropriate schemes.
3.2.6 In view of the low growth rate projections for the advanced
economies in the next 4-5 years, the intense competition for market share in
these countries as well as the robust growth projected for the emerging
economies and some other developing countries, we could be benefited by
focusing our attention also on penetrating new markets. The bilateral Free
Trade Agreements (FTAs) and the Regional Trade Agreements, could
provide the right platform for moving into non-traditional markets, through
preferential access. Thus the emphasis has to be to conclude the FTAs that
India is negotiating as soon as possible along with entering into fresh FTA
negotiations with new trade partners where careful analysis indicates mutual
benefits for both partners. Efforts must also be made to conclude the Doha
Round as soon as possible because of the promise it holds for further trade
liberalization.
3.2.12 Power
3.2.13 Ports
Ports handle 95% of our total trade in terms of volume and 70% in
terms of value. As per world benchmarking, efficient working is
achieved when the handling capacity of ports is 30% more than the
actual traffic handled. By 2020, our capacity requirement has been
estimated to be 3025 Million Tonnes (MT), whereas the planned
capacity for 2020 currently is only 1685 MT- a shortfall of 1340 MT.
The Ministry of Shipping is going to come out with a Revised
Perspective Plan for 2020 shortly, which is expected to aim for a
capacity of 3200 MT for 2020. This Perspective Plan would need
adequate and timely financing for execution.
It has been noticed that even when our ports are able to handle the
cargo at their berths, a huge bottleneck is faced in the shape of
inadequate landside evacuation facilities. Thus there would have to be
simultaneous development of the feeder rail and road networks along
with port development.
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Currently a lot of time and money is wasted by Indian exporters
because their goods have to be transshipped through either Colombo,
Singapore or Dubai. Effective steps need to be taken to reduce the
pre-berthing and turn around times of vessels, so as to attract mainline
vessels to Indian ports and reduce transportation costs and time.
3.2.14 Roads
India does not fare well in speed comparisons of its trucks as well.
According to a World Bank study7, the transit time between major
cities in India, on average, is about 33% more as compared to the US.
Moreover, Indian trucks are used for 60000-100000 km a year, which
is less than a quarter of those in developed countries. A joint study8 by
the Transport Corporation of India and IIM, Kolkata has estimated
that the average effective speed of trucks on Indian roads is only about
20 kmph, because of poor roads and check post delays. Apart from
increasing the width of the highways, the riding quality of the roads
needs to be improved and check posts across state borders need to be
eliminated.
3.2.15 Railways
As per the Ministry of Railways Vision 2020, the target for freight
traffic for 2020 has been pegged at 2165 MT. However, it has been
estimated that the projected traffic would be 4787 MT by 2020,
7
Road Transport Service Efficiency Study, November 2005, Energy and Infrastructure Operations Division,
South Asia Regional Office, World Bank
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Operational Efficiency of National Highways for Freight Transportation in India, TCI and IIM Kolkata
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showing a large capacity deficit of 2622 MT. Thus a major thrust has
to be imparted to doubling and quadrupling of lines along major
freight paths and setting up dedicated rail freight corridors from the
hinterland to the major ports.
The size of freight rakes would need to be increased and they would
also need to travel at higher speeds to transport the cargo faster and
reduce transaction costs.
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3.4 Building up Knowledge and Capabilities
3.4.2 On another front, we need to build up our brand image and inculcate
quality consciousness throughout our supply and production chain. As far as
brand building is concerned, the Department of Commerce has a vital role to
play in this endeavour, in association with the industry associations. On
inculcating quality consciousness, the major initiative would have to come
from the industry associations and administrative ministries.
3.4.4 We also need to sensitise and inform government departments and the
industry about the NTBs, SPS standards etc. prevailing in important export
destinations and in building up our own infrastructure and testing
capabilities to bring up our own domestic as well as export oriented industry
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segments to adopt global standards and best practices. The Apex Industry
Associations and the Export Promotion Councils and Commodity Boards
would have a leading role to play in this effort.
3.4.5 One of the other important points on which we would need to focus
on is sensitization of our service providers to the impact of delays in eroding
our competitiveness in the global market and the national loss that it entails.
This would need to be carried out through Open House Sessions and
Partnership Building Exercises with the participants being the client group
and the service providers. This would need to be carried out under the joint
leadership of the field offices of the service providers as well as the local
industry associations.
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SECTION- 4
Implementation Plan
4.1 The Potential Strategic Initiatives have already been dealt with in
some detail in Section 3 and suggestions regarding their prioritization have
also been provided. The issue of stakeholder engagement and the learning
agenda has been discussed in paragraphs 3.3 and 3.4 of Section 3.
4.5 DOC would have to coordinate with the administrative ministries and
other stakeholders to closely review the progress made against each element
of activity as well as the quantifiable targets, preferably on a quarterly basis,
and to examine suggestions for making mid-course corrections/amendments
to policies as appropriate. Currently, DOC brings out Annual Supplements
to the Foreign Trade Policy (FTP) by way of such mid-course amendments
to the five year FTP. If the requirements of major sectors so require, the
Annual Supplements could be converted to ones of a shorter periodicity.
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SECTION-5
5.2 First, the convergence. Both the Strategic Plan and RFD emphasise
the importance of policy support in increasing India’s annual export growth
by a CAGR of around 25%. Both speak about diversification of India’s
exports through exploration of new and emerging markets as well as
promoting employment intensive products and products of high export
potential. The importance of leveraging the SEZ and ASIDE schemes to
narrow the infrastructure deficit is also underscored. Both documents
acknowledge that the FTAs should be used to gain additional market access
and trade facilitation measures are required to reduce transaction costs. Also
support for the plantation sector and increased exports of agro-products is
part of both the approaches.
5.3 On the differences between the two, the RFD prioritises the protection
of sensitive sectors of the Indian economy against the adverse impacts of
trade liberalization and facilitating improvement in the functioning of STC,
PEC, MMTC, ECGC and ITPO. On the other hand, the Strategic Plan lays
emphasis on increasing the availability and lowering the cost of export
credit; export related infrastructure development in the power, roads, rail and
ports sectors; building up a brand image of India and diversification of
Services exports as being essential for the fulfilment of the Mission of the
Department. It also mentions protection to sensitive sectors of the
domestic industry as one of the initiatives, though low in order of
priority.
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SECTION-6
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Annual Report (2009-10), Department of Commerce, Government of India, New Delhi
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SECTION-7
7.4 The three major bodies under the standing institutional mechanism for
consultations on various issues and review are as follows.
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(ii) Export Promotion Board (EPB)- The Board is chaired by the Cabinet
Secretary to provide policy and infrastructural support through coordination
among different Ministries for boosting exports.
(iii) Inter-State Trade Council (ISTC)- The Council provides a platform for
dialogue between the Centre and the States in matters relating to trade
facilitation and to create a framework for making States as partners in the
national export effort.
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Annex I
Textiles
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Marine Products 2.20 4.00
Agricultural Products
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