Hidden costs weigh down Indian exporters

Hidden costs weigh down Indian exporters

Textiles and other key Indian industries are held back by heavy hidden costs.

Infrastructure bottlenecks, archaic procedures, and bureaucratic delays create heavy extra costs that hurt India’s trade growth, according to Maersk Line and the Confederation of Indian Industry, or CII.

India’s four key export sectors — textiles, pharmaceuticals, electronics, and automobile components — are heavily exposed to indirect or hidden costs, which currently range between 38 and 47 percent of total transportation and logistics costs, according to a study from the duo released at a New Delhi seminar Thursday titled “Stimulating India’s EXIM Growth.”

“A 10 percent reduction [in costs] can boost India’s competitiveness and contribute additional revenues of up to $5.5 billion annually [in exports],” the study said  “Reducing the costs of trade across four high-growth sectors, by prioritizing digitization, inland infrastructure development, an efficient regulatory environment and developmental training, can boost exports by 5 to 8 percent.

It’s imperative for the government to address inland infrastructure and high cost issues to facilitate trade expansion, said Rajeeva Sinha, who heads CII’s national committee on ports and shipping.

Despite challenging global economic conditions, with world trade forecast to grow between 1 and 2 percent, India is in a position to scale up its share of global trade, especially in exports, by improving the competitiveness of domestically produced goods, according to Maersk India Subcontinent Managing Director Franck Dedenis.

“India could probably be the only country to deliver nearly double-digit growth in container trade this year,” he said.

The joint study called for greater government intervention in three areas — regulatory documentation, inland transportation and costs, and terminal handling processes — to accomplish that goal.

A market driven tariff regime, better rail connectivity from ports and reducing middle men or increasing transparency in inland movement of cargo are some of the ways to reduce logistics costs, Maersk South Asia Senior Director Julian Bevis told attendees.

The survey comes as the Narendra Modi government is pursuing similar goals, striving to lower logistics costs by upgrading port connectivity networks, digitizing port and customs processes, abolishing controversial shipping surcharges, and building new deep-sea hub ports to reduce reliance on foreign transshipment ports for mainline shipping connections.

Though there’s a long way to go before the real results are visible, those efforts appear to be bearing fruit, with throughput and productivity levels at major public ports booking healthy pickups in the past months.