BREAKING NEWS

Here’s how Andhra Pradesh can enhance its Trade Competitiveness

Free trade provides the greatest opportunity to improve human welfare, and has already helped lift more than a billion people out of poverty over the past quarter-century. India is transforming, thanks to its strong performance selling products and services around the globe.
 
But what interventions, at a state level, can do the most to ensure Indian exports are globally competitive? This article is based on an analysis by Dr Amitendu Palit of the National University of Singapore. The study using cost-benefit analysis looks at what policies would help the state improve even more — and reveals that some policies are much better than others.
 
The researcher looks at approaches that would align with the ongoing coastal economic development strategy, Sagarmala, and with the state’s strategy of coast-led industrial development which seeks to fully utilize the potential of having India’s longest coastline.
 
One approach would be to upgrade one of Andhra Pradesh’s ports with state-of-art facilities that significantly enhance its maritime trade capacity — and, at the same time, ‘backward’ link-ing of the port with the hinterland, to enable fast movement of cargo and a reduction in logistics costs.
 
The main costs include new and upgraded facilities — like a container freight station, expanded berths and more dredging, along with land acquisition and infrastructure like such as expanded highways. All these fixed costs are based on data from the recent Visakhapatnam Port modernisation. Including substantial operating costs over the 20 year period, the total cost comes to ₹1,985 crores.
 
The port capacity would increase by 20 million tonnes per an-num, substantially increasing port revenue over the coming decades, totalling ₹1,695 crores.
 
This amount is a lower estimate of the social benefit from this new port, but since it also partly cannibalises other ports, it is likely that it reflects about the total social benefits for all of Andhra Pradesh. Thus, each rupee spent on a new state-of-the-art port would generate bene-fits worth slightly less than one rupee.
 
There can be strategic reasons for the government to focus on port development, but this rather slight return suggests that alter-native trade enhancement policies deserve a higher priority for scarce resources.
 
Among other proposals is the development under Sagarmala of an export-oriented apparel park in a Coastal Economic Zone (CEZ) over 2000 acres dedicated primarily to exports. With implementation beginning in 2019, facilities for use by exporters would be expected to be completed by 2024. The total costs of land, development and operations would be vast, at ₹19,235 crores.
In addition to exports generated, there will be ‘spillover’ economic activity created, meaning the creation of new livelihoods, growth of ancillary industries, and urban and retail development in surrounding areas.
 
If the increased exports and spillover effects are as strong as has been seen in similar projects in China and other parts of Asia, the benefits could be in the region of 14-times the costs. However, based on the evidence from India’s existing economic zones showing much more modest economic impact, each rupee would more likely achieve about 2.5 rupees of benefit.
 
The final proposal for Andhra Pradesh is designed to turbo-charge marine exports, by establishing a laboratory equipped with the latest scientific testing facilities for certifying quality standard of seafood exports to the United States, European Union, Northeast Asia, Southeast Asia, and Middle East.
 
Similar to the seafood certification facility at Vizag, this would encourage some seafood production currently targeting the domestic market to exports, including Vannamei shrimps.
 
A much cheaper initiative than the others explored, at ₹44 crores, the proposal has considerable returns. Driven largely by frozen shrimps, export revenues are expected to increase annually by two percent, as shrimps enjoy the highest price premium in global markets among all seafood exports.
 
In total, the intervention is estimated to bring the social benefit of ₹346 crores, meaning each rupee achieves a significant eight rupees of benefits. It is important that Indian states pick the best opportunities to continue to compete globally.
 

Photo Gallery