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As I put pen to paper, I am swamped by the different strands of news filtering in. Here is a brief list: India’s growth rate in the third quarter jumps to 7.2%, while the US growth falls to 2.5%. The new FED Chairman signals raising interest rates four times in the year than the expected three; India raises import duties on 50-odd tariff lines while negotiating in RCEP to liberalise trade amongst 16 major countries. Interestingly, China, too, is part of the RCEP negotiations and so, essentially, the RCEP is likely to be an indirect trade-off between India and China in goods. Why doesn’t one hear about the services part, where India has competitive advantage?

The God’s own country, on the other hand, raised import duties on a range of products in January 2018 and is planning to now impose such measures on steel and aluminium products. It was interesting to see the US stock market reactions – AK Steel Holding rose 2.8%; US Steel Corp 2.3%; and Nucor rose 1%. In contrast, stocks such as Boeing fell, with traders citing the higher import tariffs that would hit user manufacturers. For those of us in EEPC India, it’s like an old record being replayed in a foreign land. In 2015-16, we imposed Minimum Imports Prices on 173 steel products followed by other measures to ring fence our steel giants, thereby adversely impacting the competitiveness of the users of steel – sectors like auto, casting, fasteners, hand tools, among others. Indeed, the US needs to learn from our experience as it will soon dawn on them that such arbitrary increases to protect only those who have strong lobbying powers can be self-defeating. Today, Indian domestic users of steel are subsidising the foreign buyers of Indian steel with domestic prices of Indian steel products being more than prices at which steel is exported abroad.

The news from the rest of the world is one of recovery. However, if the wave of protectionism were to spread, we would be turning the wheel back.

In this scenario, what can we do to maintain competitiveness? As a member of the engineering exporting community, let me suggest a few steps:

• In 2017, the roll-out of GST was a historic initiative to rationalise the existing taxation system in the Indian economy by merging several central and state taxes. Unfortunately, the exporting community is having a tough time since the introduction of the new indirect tax regime. In a recent RBI Paper, it was noted that in the engineering sector, the Working Capital to Sales ratio is as high as 47% and export refunds are a problem. It is imperative that the export refund issue be sorted out on a war footing.

• The Economic Survey 2017-18, Vol.1 (p6) points out that the Indian economy’s competitiveness has had to contend with the real effective exchange appreciating about 21% since January 2014. The work of noted economist Dani Rodrik, it says, provides evidence that a competitive exchange rate that boost investment and growth will elicit its own savings. In other words, there is economic evidence suggesting competitive exchange rates are more important for export-led growth. It is our contention that an appreciating real effective exchange rate (REER) has led to imports being more and impacted our competitiveness. I feel that a competitive REER will reverse this trend and enable our products to be globally competitive. I suggest that the gap between the Nominal Exchange Rate and the REER should not be more than 10-15% on the average in every quarter.

• Like the Apparel Sector, we feel that there should be Rebates on State Levies (ROSL) on engineering product exports to offset indirect taxes levied by the States that are embedded in exports. As the Economic Survey has observed, the GST Council conduct a comprehensive review of embedded taxes arising from products left outside the GST (petroleum and electricity) and those that arise from the GST itself (for example, ITCs that gets blocked because of ‘tax inversion,’ where taxes further back in the chain are greater than those up the chain). This review will lead to an expeditious elimination of these embedded export taxes, which could provide an important boost to India’s manufacturing exports.

• Finally, all the Indian States must realise that there is a strong correlation between its per capita GSDP and how much it trades both with the country and externally. Hence, our States must proactively support Export Promotion bodies. Exports pays – be it the exporter, the State, the Centre, and is national welfare enhancing, unlike, say, foreign portfolio investment!

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