This year’s Union Budget has placed a distinctive emphasis on nine key pillars to drive comprehensive development and ensure sustained economic growth. Building on the commitments made in the interim budget, these ‘Navratans’ will lay a strong foundation for future growth and accelerate progress toward the goal of ‘Viksit Bharat.’
With a vision of becoming an economic powerhouse and increasing India’s share in global trade to 10% by its centenary, the budget has laid thrust on manufacturing, MSMEs, infrastructure, and trade facilitation measures to create a robust ecosystem that fosters innovation, enhances productivity, and strengthens supply chains.
The budget prioritises MSMEs and labour-intensive manufacturing by providing a comprehensive financial, regulatory, and technological support package. Some of the key measures are the credit guarantee scheme for machinery loans, the new credit assessment model for public sector banks, and enhanced Mudra loan limits. Further, reducing the turnover thresholds required for onboarding on the TReDS platform will improve liquidity and boost the working capital of these small and medium players.
These initiatives are critical for labour-intensive sectors such as textiles, apparel, footwear and leather, which have recently experienced sluggish export performance due to geopolitical challenges. The government has expanded the list of items eligible for duty-free imports under the IGCR Rules for manufacturing textiles and leather garments for export to support these sectors. These include finished leather, velcro, elastics, etc. Additionally, reducing the basic customs duty on the import of methylene diphenyl diisocyanate (MDI) from 7.5% to 5% will lower the costs of Spandex yarn used in the textile industry and correct the duty inversion. These measures will enhance the competitiveness of these sectors and help India regain its market share, which has been under pressure due to increasing competition from countries like Vietnam and Bangladesh.
The Employment-Linked Incentive (ELI) and Skilling initiatives announced in the budget would generate employment and benefit the industry by providing skilled workers and financial support through PF reimbursements. These measures will enhance the cost competitiveness of manufacturing exporters.
The establishment of e-commerce export hubs through the Public-Private Partnership model will significantly streamline export services, making it easier for MSMEs to access international markets. By centralising all trade and export-related services under one roof, these hubs will ease business operations for e-commerce players. This will also boost the e-commerce industry to realise the target of USD350 billion by 2030.
The 2024 budget has outlined transformative reforms for India’s shipping industry to invigorate the sector with robust policy changes. The implementation of ownership, leasing and flagging reforms will give a much-needed boost to the maritime sector and foster trade. The Finance Minister also announced the simplification of rules and regulations for FDI and overseas investments. This augurs well for attracting capital in export-oriented industries. The simplification is also directed towards providing opportunities for using the Indian Rupee as a currency for overseas investments.
Another significant announcement in the budget was the rationalisation of duty structures over the next six months. This will give impetus to manufacturing, address issues of inverted duty structures, and improve the export competitiveness of Indian products.
The government has made a significant move by amending the Customs Act and allowing self-certification to prove the origin of goods in new trade agreements. This change will streamline processes by reducing administrative burdens and mitigating delays, enhancing overall trade efficiency.
All these measures will play a pivotal role in further catalysing our export growth and strengthening India’s position in the global trade landscape. However, the disruptions in international trade flows due to geo-political tensions, as well as the rise in trade protectionist measures, have created an environment of uncertainty for global trade. To effectively navigate these reconfiguring global trade patterns, the government should consider implementing the following strategic actions:
- First, expedite the launch of the ‘Trade Connect e-Platform’. This will act as an advisory on all international trade-related matters by providing key insights on various regulations in international markets, trends, information on FTAs, etc. It will enable exporters to understand potential markets for diversification where their products have a comparative advantage.
- Second, conclude the FTAs that are in advanced stages of negotiations with countries such as the UK and Oman, ensuring that these agreements are comprehensive and beneficial to India’s trade interests. Accelerate ongoing trade negotiations with the EU, as this will create significant market access for Indian exports.
- Third, address the non-tariff barriers domestic producers face in foreign markets by negotiating ‘Mutual Recognition Agreements’ and ensuring ‘Harmonisation of Standards’ to facilitate easier access to exports of Indian goods and services in partner countries.
- Fourth, emphasise underrepresented states to enhance India’s overall export performance. Currently, Gujarat and Maharashtra dominate India’s exports by 33% and 16% respectively. Therefore, it is critical to develop and implement state-specific export promotion plans by providing targeted incentives, improving infrastructure, and organising capacity-building sessions to enable exporters to make the most of this opportunity. The alignment between centre and state policies would further diversify exports across the country.
- Fifth, chart out a strategy to effectively navigate the emerging global regulatory challenges to Indian exports, such as the carbon border adjustment mechanism (CBAM), deforestation regulations, foreign subsidies regulations, etc.
As India aspires to become a ‘Viksit Bharat’ by 2047, international trade will act as a cornerstone in driving its growth story. With a vision to increase India’s export share in GDP by 25% by its centennial, a multifaceted approach should be adopted to unlock the untapped opportunities. The government has been supporting the industry by addressing the key challenges and issues confronting exports. The industry must also remain resilient to temporary disruptions and expand its footprints in new markets.
The author is Chairman, FICCI Foreign Trade and Trade Facilitation Committee & Managing Director, Shahi Exports
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