Is not the time rope for New Delhi to seriously engage in talks with Beijing on the trade front? The issue has gained considerable importance as the trade deficit with China has been constantly on the rise during the past few years. Nearly 50 per cent of the total trade deficit is accounted for by China, indicating the enormity of the problem. This means if appropriate steps are taken to reduce the deficit with China, it will have a huge impact on the total deficit as well. Besides China, the other top 4 countries with which India’s trade balance is negative are Switzerland, Saudi Arabia, Indonesia and Iraq. The top 5 countries with which India has surplus trade balance are the US, UAE, Hong Kong, the UK and Singapore. Cotton yarn, among others is the major item of export to China.
But it’s off take by China has got reduced in recent years putting pressure on our spinning industry. It is capital intensive and is very important for the value-added sector to develop and thrive. India has 52.45 mn spindles and 8.76 lakh rotors spinning capacity. There is a 30 per cent excess capacity. Globally, India is the second largest producer of cotton yarn with a share of 2.5 per cent of the global cotton production.
Now, look at the latest data which is also revealing. India’s exports to China were valued at $15.4 bn, whereas imports almost doubled to $30 bn during April-August 2018. In respect of textiles and apparel products, there was a trade deficit of $1,543 mn in 2017-18. Of this, exports amounted to $1,362 mn and imports to $2,905 mn. To reduce the deficit, exports, especially of cotton-based items where we are very competitive, must increase. But, there is a problem. India faces a duty of 3.5 per cent, 10 per cent and 14 per cent on yarn, fabrics and madeups respectively in the Chinese market. However, our competing countries such as Vietnam, Indonesia, Pakistan and Cambodia enjoy duty-free entry in China. It is to be noted that India was a net exporter of textiles and apparel products to China between 2010-11 and 2013-14. Therefore, India should take up the matter of duty free entry of textile and apparel products with China without any loss of time.
While the trade deficit issue is yet to be resolved, the Indian textile and apparel sector is inundated with imports of spun yarn and fabrics during the past one year, post GST. Imports of spun yarn have grown from $146 mn in 2016-17 to $304 mn in 2017-18, a steep increase of 108 per cent. Imports of fabrics have risen from $216 mn to $364 mn during the same period. The solution lies on raising the import duty on these items to lessen the impact on the manufacturers.
The on-going trade war between the US and China has opened up a window of opportunity for India. The Commerce Ministry is seized of the matter and has identified a host of items for export to these countries. In this regard, we must follow the policies adopted by Beijing, which is relying on in-bound Foreign Direct Investment (FDI) that has played an important role in China’s economic development and exports. Foreign invested enterprises account for over half of China’s exports and imports. They provide for 30 per cent of Chinese industrial output, generate 22 per cent of industrial profits and employ 10 per cent of labour needs. India could gain better market access and also help in technology and skill upgradation.
India also needs to export value-added items to shore up its forex earnings. Technology-intensive and skill-intensive exports can be taken as a proxy for value-added items. As present, the share of high tech exports in manufactured exports is low compared to China, Singapore and South Korea. Another way of looking at value-added exports is by seeing the exports of products by stage of processing. India’s exports, by stage of processing, show a greater share of consumer of goods and intermediate products. In countries like Hong Kong and Singapore, the share of capital goods is high. It is high in Japan, the US and even China. So, there is need for India to move up the value chain.
The government must also think in terms of according the national priority sector status for exports and greater involvement of States in the total export effort, while framing and implementing the Foreign Trade Policy (FTP). Based on available, though imperfect data, the top States at present are Maharashtra, Gujarat, Tamil Nadu and Karnataka with a share of 61 per cent in total exports. States need to play an active role in the export effort. To motivate them is by way of devolution of funds under the Finance Commission set-up by the Union Government. The criterion of export performance could also include in the devolution of funds since they are also the beneficiaries of the resultant development from exports. Statewise data on exports needs to be compiled systematically based on place of production instead of place of exports or place of receiving payments.
India has made a lot of progress in airport-related infrastructure. But it is lagging behind sea-port-related infrastructure. Export infrastructure, particularly port-related infrastructure, which affects trade, needs to be given immediate attention. These include deepening of drafts of berths, deployment of shore mobile cranes upgradation and greater use of minor ports, reduction in inefficiency at ports etc.
