The government should lower import duties on inputs and raw materials to stop importing inflation and help domestic manufacturers compete for global orders, Crisil said in a report on Monday, suggesting policy actions in the next budget to support exports.
While recent strength in global demand is likely to push India’s merchandise exports past a record $400 billion in 2021-22, “the toughest part will be maintaining momentum once moderate global growth” as massive stimulus packages around the world come to an end, the rating agency said.
To achieve the government’s $1 trillion target for merchandise exports by 2029-30, Crisil stressed the need to initiate specific measures in this budget to boost infrastructure spending for trade. , reduce tariff costs and improve credit risk coverage to facilitate trade.
“Exports to India have historically ridden the wave of global growth. But when that recedes, as expected this calendar year, exports will not be able to rely solely on external demand to sustain it,” wrote the agency’s chief economist, DK Joshi, in the report co-authored with his colleague Amruta Ghare. India also needs to consolidate the recent increase in the share of industrial/capital goods in overall merchandise trade.
“To tackle these two issues, the budget’s focus on developing transport and logistics infrastructure to reduce the time and non-tariff costs of cross-border trade will be imperative,” they added.
“The net terms of trade in fiscal year 2022 have steadily declined, implying a faster rise in import prices relative to export prices. This year too, commodity prices are expected to remain high and volatile,” they wrote. “Therefore, reducing tariff costs through a change in tariffs on raw materials and inputs would help reduce imported inflation and also support domestic manufacturers.”
Crisil has also sought measures to accelerate low credit risk coverage for project exports under the National Export Insurance Account, into which the Ministry of Finance last year announced an injection of 1 ₹650 crore to support exports worth ₹33,000 crore by 2025-26.
“Progress has been relatively slow this year – according to the Ministry of Commerce, NEIA supported exports worth only ₹91.4 crore by issuing insurance cover worth ₹58 crore between May and August 2021.”