The Hindu Business Line : Exim Policy — Mere tinkering won't do

Instead of tinkering with micro policies every now and then, giving incremental benefits to the disparate exporting community, the Exim Policy should focus on macro issues so that exporters carrying on their jobs in spite of government intervention at various levels do not show any let-up in their perseverance to go for fresh pastures and earn the much-needed foreign exchange.

The Union Commerce and Industry Minister, Mr Arun Jaitley, needs to focus on the big picture, looking at ways to facilitate processes and make them transparent so that exports are stepped up.

THE customary modification to the five-year Export-Import Policy (2002-07) is due on March 31, 2003 by the Union Commerce and Industry Minister, Mr Arun Jaitley, with the added attraction that the media-savvy Minister must perforce put his own stamp and style into what is an annual ritual.

For the Minister, given the portfolio only in the first week of February, the time at his disposal to grasp the task of policy nuances on exports remained too short even as his attention was diverted to attending a mini-ministerial of the World Trade Organisation in the run-up to the Cancun Ministerial of the WTO, scheduled for September 2003.

Fortunately for Mr Jaitley, the country's exports have been buoyant for most of this fiscal, save in the last few weeks as the US engagement in the Gulf region threatens to leave its undesirable mark on the foreign trade by disrupting movement of cargo both on the sea and in the air. Exports increased 17.4 per cent during the first ten months of this fiscal compared to 9.8 per cent in the corresponding period of 2001-02.

All key components of exports — agricultural and allied products, ores and minerals, and manufactured goods — have done well than in the corresponding previous period. Major winners include chemicals and related products, engineering goods, primary and semi-finished iron and steel, transport equipment, textiles and garments and gems and jewellery.

Thanks to the fortuitous circumstances, the country's exports have been looking up this fiscal particularly against the bleak backdrop when exports in dollar terms rose 1.6 per cent in 2001-02 against a growth of 21 per cent in 2000-01 and an average rise of 8.6 per cent in the 1990s.

While for most of the 1990s, the export growth averaged 9 per cent, in the wake of a comprehensive trade policy reforms the Government undertook to improve external competitiveness, export performance in the initial years of the current decade has been highly volatile and lacking in consistency.

It is not for nought that the latest Economic Survey lamented that growth in the volume of exports decelerated sharply from 23.9 per cent in 2000-01 to 3.8 per cent in 2001-02 with the unit price of exports declining, leading to a 2.4 per cent loss in net terms of trade during the year.

As the Survey puts it, India's share in world trade — which stood at 2.2 per cent in 1948, had declined continuously to 1.3 per cent in 1953, one per cent in 1963, 0.5 per cent in 1973 and 1983, improving marginally to 0.6 per cent in 1993 — stood at 0.7 per cent in 2001. That is why the Medium-Term Export Strategy (MTES) incorporated an objective to capture one per cent of the global share of trade by 2007.

Translated in value, the projected growth would mean nearly doubling the extant exports of $46 billion to more than $80 billion a year over the Tenth Plan span (2002-07), implying a compound annual growth rate (CAGR) of 11.9 per cent.

For realising this, the five-year Exim Policy announced by the then Commerce Minister, Mr Murasoli Maran, spoke of "waking up ourselves from the stupor of export fatalism of the earlier years, release ourselves from the feelings of export pessimism and apathy and employ international trade as an engine of growth".

Be that as it may, India no longer has impregnable walls for its beleaguered industry, which persists with its efficiency and remains poorly competitive in price, quality and delivery schedule in the demanding export markets abroad. Year after year, the Customs duties have been brought down, the latest Budget lowering the peak rate to 25 per cent.

But here there is a mismatch, with the domestic industry taking diametrically opposite views on the need to reduce duty on capital goods to the global levels — 2-3 per cent, including in the developing countries, while some segments of the domestic capital goods industry are pleading for protection and demanding the high tariffs to be retained.

The fact remains that the basic Customs duty on the import of many of the capital goods, increased from 20-25 per cent in the 1999-2000 Budget, continues to remain at this acme; the latest Budget also maintains this level, save in a few cases, to benefit domestic textile industry by bringing down the tariffs on imported capital goods.

The premier research think-tank, the NCAER, has questioned the rationale of holding capital goods duties at 25 per cent, particularly with the removal of quantitative restrictions (QRs) and SSI reservations under which the country is called upon to create new manufacturing units with global standards. It has rightly emphasised the clamant need to allocate new resources using capital goods of the latest vintage rather than continue to endanger future growth by wilfully safeguarding capital goods manufacturers at 25 per cent.

Even as this is being interpreted as us-versus-them by Indian industry, the Exim Policy modifications have been largely done to appease a few sectors instead of looking at the ground realities to help unleash export growth impulses from blooming across sectors and products through a focussed approach. It is a sad commentary on the state of affairs that the Directorate General of Foreign Trade (DGFT) remains the focal point for Exim Policy to the exclusion of other major policy divisions within the Commerce Ministry, which only play a peripheral role.

For instance, as far as exporters go, they are mostly happy with the duty exemption schemes and reimbursement of drawbacks from the revenue department for duty neutralisation in the inputs they use for manufacture of export production.

Considering the fact that a clutch of duty exemption/remission scheme such as Advance Licence, Duty Entitlement Passbook Scheme, Duty Free Replenishment Certificate, special scheme for gem and jewellery, replenishment licence, export promotion capital goods scheme is being monitored and implemented by the DGFT and its various Regional Licensing Offices, the Exim Policy has always been concentrating on these schemes by adding or deleting provisions for keeping the merchant-exporters busy in adhering to rules and regulations, robbing them of their precious time for concentrating on exports and compounding to their transaction cost.

But big exporters do not waste time running after the licensing authorities to get drawback or other sops as they find the effort unavailing and utterly energy-sapping.

The Commerce Ministry has several export incentive schemes outside the Exim Policy such as the Special Economic Zones, recently announced Price Stabilisation Fund for Commodities, Focus Africa, Latin America, WTO- related matters such as export inspection councils, maintenance and prescription of new environmental sanitary and phyto sanitary standards, patent and intellectual property rights, agricultural exports and state infrastructure for export development.

So instead of tinkering with micro policies every now and then, giving incremental benefits to disparate exporting community, the policy should focus on macro issues such as export finance, infrastructure including ports, airports, Customs and how to bring down the overall high transaction cost to industry so that the benefits of policies get translated into tangible ways.

There is genuine apprehension among merchant-exporters that some influential officers in the Ministry may push their own policy agenda with the Minister, instead of enabling him to take a comprehensive view of the exporters' woes so that his responses would be adequate, confidence-building and serve as a morale-booster.

The new Minister should eschew the tendency to announce a spate of insignificant changes in the Exim Policy but concentrate on the big picture so that exporters who are carrying on their jobs in spite of government intervention at various levels do not show any let-up in their perseverance to go for fresh pastures and earn the much-needed foreign exchange.

Services export deserves a new orientation for which the Ministry has done hardly any solid groundwork. Mere announcement of hardware/software parks would not do as exporters want transparent and easy-to-follow facilitation process.

The bureaucratic machinery needs to get its act together in the Commerce Ministry and it must have a single-point agenda of how to render the atmosphere conducive for stepping up exports by focussing on a complete package instead of tinkering here and there, leaving every one dissatisfied.

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