Debating India

Missing, a holistic view of trade

Wednesday 13 April 2005

NO MAJOR CHANGES were expected from the annual supplement to the foreign trade policy that was unveiled by Commerce Minister Kamal Nath on Friday. The five-year Foreign Trade Policy (FTP) presented on August 31, 2004 was the United Progressive Alliance’s first policy statement in the area and was meant to replace the earlier Export-Import policies. However, despite being projected as a departure from EXIM policies, the FTP hardly contained any path-breaking announcements. Given the diminishing role of the Government in exports and imports, it is perhaps not realistic to expect significant announcements and concessions from trade policy statements. The first annual supplement to the FTP sticks to the pattern already established; it is mainly an exercise in fine-tuning procedures.

There is another reason why trade policy announcements do not appear all that significant. Foreign trade, except in a narrow procedural sense, cuts across the domains of several Ministries. The well-known constraints to exports - high transaction costs, `export’ of domestic levies, and above all infrastructure inadequacies - cannot be addressed by the Commerce Ministry alone. Nor is the ballooning petroleum import bill, estimated at $29 billion out of a total import bill of $105 billion last year, the sole concern of any one Ministry. Most likely, it is the absence of a timely and co-ordinated action plan by several arms of the government that explains the Commerce Minister’s inability to effect changes such as replacing the duty entitlement passbook scheme. The scheme, a major export incentive, seeks to neutralise the incidence of domestic levies on exports. Trade policy should take a holistic view and deal with the whole range of policy measures in fields such as transportation, logistics, and banking.

Exports, which have been growing at a brisk pace in recent years, touched $80 billion last year. The share of India’s exports in global trade is still minuscule, less than the share of many small countries. There is a need to broadbase the composition of exports and look beyond the top six destinations - the United States, the European Union, the United Arab Emirates, the United Kingdom, China, and Japan. Not to be forgotten, the stickiness in oil imports and the high global petroleum prices all but rule out the possibility of the trade deficit narrowing in the near future. Last year, merchandise imports exceeded exports by $25 billion. The deficit was met entirely by services, essentially software exports estimated at $30 billion. It is time the overall policy framework transcended the confines of merchandise trade and tapped the full potential of these two sources in boosting the balance of payments.

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