The recent cotton export policy imbroglio has once again brought to the fore the need to evolve long-term, stable and transparent trade policies with clear directive or guidelines for effecting any drastic change.
Apart from showing policymaking and implementation in poor light, the sudden and regressive change in the cotton export policy has exposed the indifference of policymakers, as well as lack of application of mind.
In the last 3-4 years, the Government has succumbed to the temptation of tinkering with the foreign trade policy even when other instruments were available for regulating trade. For instance, export of several agricultural commodities — pulses, wheat, rice and sugar — was banned. Of course, in a few cases export restrictions have been lifted.
Rather than a well thought out trade policy, banning export has been more of a knee-jerk reaction to rising open market prices.
Embargo on export is usually said to be part of Government strategy to combat food inflation; but that so-called strategy is actually a facile option that generally goes against the spirit of trade liberalisation and damages the country's credibility rather than advance it.
If anything, banning export amounts to an attack on the free trade policy with the result that India's trade partners lose their trust over the stability of Government policy.
Fiscal instrument
Instead of banning export, what should or could the Government have done? The Government ought to have used the fiscal instrument of tariffs (customs duty on export and import) to regulate foreign trade. Imposition of stiff export duty will automatically bring to halt excessive exports or in any case, moderate them. The Government has the flexibility to vary the rates of duty from time to time. Additionally, revenue for the exchequer is assured. Such tariff changes are the functional responsibility of the Finance Ministry.
When exports are banned, the vexatious issue of pre-ban commitments invariably arises.
In case of imposing or varying the customs duty, there is no such difficulty. Duty is levied on goods that are shipped out after notification of export duty. The number of contracts registered or aggregate quantity of goods registered for export is immaterial. So long as the exporter pays customs duty he should be allowed to ship out the goods.
It is strange that the Commerce Ministry rushed to ban cotton exports when another effective option of imposing export duty was available to the government. It transpires that Agriculture Ministry was not consulted. Was the Finance Ministry consulted?