Clearly, An EXIM Policy That’s More About EX Than IM

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In January, we had the Medium-Term Export Strategy for 2002-07. Yesterday we got the Medium-Term Policy. According to the former, India’s share in world exports will increase from 0.67% to 1%, up from $46 billion to more than $80 billion. What does it take to accomplish this 11.9% annual rate of growth in exports in dollar terms? That is what the 2002-07 Exim (export import) policy was supposed to spell out.

At a conceptual level, three sets of factors influence export growth — supply-side, demand-side and the exchange rate. The track record of export growth in the 1990s was the best ever since 1947. In half of those years, exports grew by more than 15% in dollar terms.

Most supply-side constraints require domestic reforms, which have not only been tardy, these constraints also explain high transaction costs associated with exporting, variously estimated to be between 15% and 20% of export price. Since reforms have been tardy, the 1990s export growth is largely explained by rupee depreciation, buoyant demand and decline in import protection, tariffs as well as QRs (quantitative restrictions).

Why do we need a policy specifically for exports and imports? There is not much to be said on imports. Article XVIIIB type QRs on imports disappeared last year. Article XX and XXI type QRs remain, covering around 600 items. If anything, last year’s Exim policy was extremely defensive about QR elimination — war room for 300 sensitive items, non-tariff barriers (NTBs) and stuff like that. Since imports haven’t exploded, this year’s Exim policy is far less defensive.

Import duties are the province of finance ministry and we have a time frame of peak basic customs duty of 20% on industrial products in three years, with a slab of 10% for raw materials and intermediates. However, the policy does mention 0% duty on rough diamonds, spliced with end of import licensing on roughs. And barring some canalisation, QRs on exports of agro products have gone. While on imports, one should, however, mention the adoption of the 8-digit harmonised system. This will not just reduce disputes, as the speech highlights, it will also enable hikes in disaggregated import duties, since India’s WTO bound commitments are usually at the 4-digit level.