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India:Simplified procedures led to decrease in export
transaction cost: ASSOCHAM study |
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2005-1-5
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Simplification of procedures and complexities that the government introduced in the last 6 years have significantly reduced Transaction Cost of Indian exports by 5% from 1998 to 2003-04 for products like textile/garments, engineering goods, pharmaceuticals, computer software and chemicals, according to a study conducted by The Associated Chambers of Commerce and Industry of India (ASSOCHAM).
Releasing the Study, ASSOCHAM President, Mr. Mahendra K. Sanghi said that while transaction costs have reduced across the sectors, the maximum cost in terms of present export revenue particularly in the textile/garment sector, engineering goods, pharmaceuticals have respectively come down to 10%, 5% and 8% from 15%, 10% and 10% from 1998 to 2003. The textile and garments are one of the major items in India’s export, accounting for as much as 23.25% of India’s aggregate exports by the end of 2003-04.
In case of chemicals, the transaction cost as percentage of export revenue while was 14% in 1998, it fell to 5% by the end of 2003-04. As regards to computer software, the cost came down heavily from 10% to less than 2%, Mr. Sanghi said. The agro-industry is another sector where the transaction cost has slipped from 7.5% in the year to less than 2%.
Mr. Sanghi said that rationalization and simplification of complexities and procedures were main reasons behind the fall in the transaction cost of Indian exports adding that, the phenomenon still highlights the need for further streamlining of old and prototype procedures to make Indian exports highly competitive.
However, the ASSOCHAM Chief felt that the simplification in the procedures have not led to curtailing delays in getting various refunds in textile/garments and pharmaceutical sectors as they constitute the major cost for exports.Firms in the engineering goods and chemicals have also reported delays in obtaining various refunds while the ASSOCHAM was conducting a survey, Mr. Sanghi said.
According to ASSOCHAM Study, in the software sector, high cost of working capital loans and delays in outward remittances, as also delays in obtaining various licences have impacted the performance of the firms. In the plastic industry, transaction costs, which have been reported to be in the range of 5-10% of export revenue, have primarily been due to obtaining various licences and getting duty refunds. Firms in the paper products and bio-tech sector have also reported delays in getting refunds.
It may be mentioned here that while most firms across the sectors selected, have reported reduction in the magnitude of transaction costs as a percentage of their present export earnings, majority of the firms have not reported the project rise in export earnings in the absence of these transaction costs.
Besides favourable external developments, a conducive policy environment supported by adequate infrastructure is essential to facilitate and enhance the country’s exports. Towards this end, various modifications and simplifications have been effected in the exim policies in recent years to streamline the policy environment for exports.
There is a need to continuously monitor the exporting environment with a view to reducing impediments to external trade. This in turn would call for active interaction between policy makers, export agencies and exporters to solve specific problems in specific sectors, as the impediments encountered by exporters in different sectors would perhaps require specific measures, Mr. Sanghi said.
SECTORWISE TRANSACTION COST OF INDIAN EXPORTS
Textile/Garments:
- Transaction cost as % of export revenue (1998) 15%
- Transaction cost as % of export revenue (2003-04) 10%
Chemicals:
- Transaction cost as % of export revenue (1998) 14%
- Transaction cost as % of export revenue (2003-04) 5% |
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