Liberalization and privatization in Indianeconomy has integrated it with global economy but has also created instability,uncertainty and other compounding effects. 2008financial crisis on Indian Trade:Before crisis India’sexport and import had been growing robustly but India could still manage thedirect adverse impacts of great recession of 2008-09 as few sectors are veryweekly integrated with global markets.
However, India’s real economy is majorlyintegrated with global trade and capital flows from foreign countries and thisis where India suffered indirect impact when financial meltdown occurredresulting in a worldwide economic downturn. Plausible causes for this severretrenchment in global trade can be due to:· Increasedincome elasticity of world trade which has risen to almost double as comparedto early post liberalization era. This increase in elasticity is caused byemergence of cross border production and vertical specialization attained byeconomies which resulted in expansion of inter-industry trades therebyamplifying the problems during crisis.· Impactwas also observed on exports of India due to demand related shocks likecommodity prices and subsequent impact of production of consumer durable goodsand investments goods. Similarly, imports also showed contraction duringSeptember’2008. · Majorcontraction was observed for good like petroleum related products, agriculturalproducts, chemical products due to the demand side slowdown globally. On theother hand products like crude oil also has major share in India’s imports alsosaw a decline of about 17% during 2008-09.
Driven by all theseinflationary concerns RBI also increased rates in 2008. All this had impact onGDP and hence showed declining movements during the year of crisis.Manufacturing sector had a major hit during global crisis as compared toservice sector as globally the demand of products was reduced impacting theproduction.
Projected impact of ‘Make in India’ initiative:India’s manufacturingsector has evolved through many difficult phases from initial industrializationto post liberalization and is part of global competitiveness. Biggest advantagethat India has is favorable demographics, workforce and vast domestic market.Infrastructure wise also there are many special economic zones and otherindustrial corridors which ultimately help to manufacture the goods requireglobally within India itself. Foreign Trade policy also support and providesubsidies to promote manufacturing within India. It also plans to provideinvestment allowance at 15 percent for manufacturing companies who invest hugeamount to deploy new plant and machinery.
This initiative has made tremendousimpact on the investment climate of country as Foreign Direct Investments(FDIs) equity inflows showed a significant growth of 46% and the highest evenin the current era. Manufacturing sectorcurrently accounts for 15% of India’s GDP and aim of government is to increaseit to 25% by 2022. With Make in India government is further trying to eliminateunnecessary regulations, bureaucratic process, upgrade our infrastructurefacilities and open new sectors to foreign direct investments. Also, this wouldencourage foreign investors to invest in Indian products.
Export oriented growthmodel was introduced as part of make in India initiative, that will help to improvebalance of payments and accumulating foreign exchange reserves. This will bringin more foreign capital improving the credit rating of India. To facilitate make inIndia initiative foreign trade policy has reduced several export obligationslike providing duty free import of machinery, spare parts. Further to thisthere is relaxation on domestic procurement by exempting the excise duty fordomestic capital goods manufacturers. Also import of capital goods forproduction activities are allowed to import at zero customs duty. Initiatives on Foreign Trade:Government of India hasannounced new Foreign Trade Policy for the period of 2015-2020 on 1stApril’2015. Key measures envisaged under this policy are:· Inorder to promote domestic capital goods manufacturing industry 75% ofobligations have been reduced on capital goods.
· Exportitem with high domestic content is provided higher level of rewards underMerchandise Exports from India Scheme (MEIS).· Topromote digital India initiative, government is allowing companies to submitdocuments online.· Italso aims to increase India’s share of world trade from 2% to 3.5%.
· IncentivizeSEZs (Special Economic Zones). Apartfrom above some of the strategic initiatives and priorities decided include:· Diversificationsinto non-traditional markets, conclusion of ongoing FTA negotiations andinitiating new FTAs· Strengtheninginfrastructure related to exports· Enhancingcredit flows and lower costs for exports· TransactionalCosts reduction techniques· Priorityto service exports along with goods exports. Foreign Trade Policy Initiatives in termsof ease of doing business:FTPcrucial agenda was on improving ‘Ease of Doing Business’ and Trade Facilitationwith rest of the world. It also considered current market and product strategy and the measures that are requirednot only for export promotion but also for the enhancement of the entire trade ecosystem.· Exportfrom India Schemes: for merchandise and service exports various incentives arerevised and merged into one scheme. Under this scheme focus is given onexporting quality goods from India rather than encouraging imports of uniquegoods.
· MerchandiseExports from India Scheme (MEIS): This scheme offers even higher incentives forproducts like agricultural and village industry products, packaged products,eco-friendly and green products that create value from agricultural waste andother waste products that generate additional income for the farmers, resultingin improving the environment.· E-commerceExports: Using e-commerce under MEIS a new scheme has been introduced to exportgoods through courier or foreign post offices.· InterestEqualization scheme: The revised rate of interest on pre and post shipmentrupee export credit is decided to be 3%.· Simplifiedsystem for issuance of Importer exported code (IEC) has been introduced so thatonline filling of documents can be done and paperless trade can be executedwithin twenty four hours. · SEZs(Special Economic Zones) scheme which is meant for promotion of export & importsfrom domestic and foreign sources continues to aim at generating employmentopportunity and providing infrastructure facilities.
· Onlineprocessing of documents and digitization of works related to export and importis also facilitated. National Institute of Smart Government has alsoimplemented digitization so that licensing and subsidy disbursement functions canbe executed with ease. India’s Stand in the World Trade Organization (WTO):The recent Conference ofthe World Trade Organization (WTO) it was decided that a Special Safeguardmechanism (SSM) will be introduced for developing and emerging countrieswherein export subsidies will be eliminated for farm exports and specially forcotton producers. Recent Developments in Regional Trade Agreements (RTAs) hasalso shared views on Indian trade liberalization with assurance to provide non-discriminatory support to multilateral trading system developed under WTO.