Crisil calls for tariff cuts to spur exports

‘Lower duties needed on inputs, raw materials to stop importing inflation’

A truck ferries a shipping container at a port in the southern Indian city of Chennai February 13, 2013. India posted its second highest ever monthly trade deficit of $20 billion in January, worsening from a $17.7 billion deficit in December, piling pressure on a widening current account deficit and limiting scope for the central bank to cut interest rates. REUTERS/Babu (INDIA - Tags: BUSINESS)

The government should lower import tariffs on inputs and raw materials to stop importing inflation and help domestic manufacturers compete for global orders, Crisil said in a report on Monday, mooting policy actions in the upcoming Budget to support exports.

While the recent buoyancy in global demand is likely to push India’s merchandise exports past a record $400 billion in 2021-22, ‘the harder part will be to keep the momentum going once global growth moderates’ as massive stimulus packages across the world wind down, the rating agency said.

To attain the $1-trillion target set by the government for merchandise exports by 2029-30, Crisil emphasised the need to initiate specific measures in this Budget to boost infrastructure spending for trade, reduce tariff costs, and enhance credit risk cover to facilitate trade.

“Exports in India have historically ridden the global growth wave. But when that recedes, as expected this calendar year, exports cannot rely on external demand alone to prop it up,” the agency’s chief economist D.K. Joshi wrote in the report co-authored with colleague Amruta Ghare. India also needs to consolidate the recently seen increase in share of industrial/investment goods in overall merchandise trade.

“To tackle both these, the Budget’s focus on developing infrastructure in shipping and logistics to reduce time and non-tariff costs of trading across borders will be imperative,” they added.

“Net terms of trade in fiscal 2022 has consistently declined, implying faster increase in import prices vis-à-vis export prices. This year too, commodity prices are projected to stay elevated and volatile,” they wrote. “Hence, a reduction in tariff costs through a change in custom duties for raw materials and inputs would help bring down imported inflation and support domestic manufacturers as well.”

Crisil also sought steps to expedite the low offtake of the credit risk cover for project exports under the National Export Insurance Account, in which the finance ministry announced a ₹1,650 crore infusion last year to support exports worth ₹33,000 crore by 2025-26.

“The progress has been relatively slow this year — according to the Ministry of Commerce, the NEIA supported exports worth only ₹91.4 crore by issuing insurance cover worth ₹58 crore between May-August 2021.”