The global dynamics need yearly review

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Why have an annual trade policy when there is already a five-year policy? The basic objective of a five-year policy is twofold: it reflects the priorities for the economy; and it provides a stable policy environment to exporters. This is also essential for our objective of making India a global hub for manufacturing, trading and services.

Moreover, today international trade is not only fiercely competitive but also dynamic. Market conditions change almost daily, requiring a quick response and, more importantly, anticipation. International institutions like the IMF revise annual growth forecasts for world trade three times a year clearly underlining that nothing can be accurately anticipated in the fast-changing global scenario.

Five years is too long a period for a policy to continue without refinements. Therefore, it is imperative that we frame an annual reworking of the trade policy after an assessment of export performance, factoring in changes in the international market and based on our anticipation of currency and market movements in the short term.

The trade policy is essentially a roadmap. It contains the basic principles and points to the direction in which we propose to go. By virtue of its very dynamics, a trade policy cannot be comprehensive in all its details; it would require modification from time to time. This is done through continuous reviews, based on the changing dynamics of international trade.

Countries sign free trade agreements (FTAs) and preferential trading arrangements (PTAs) at the drop of a hat, thus posing new challenges to our exports and reducing their competitiveness vis-à-vis the signatories to these agreements. With intra-regional trade touching 60% of world trade, FTAs and PTAs will continue to dominate. Being a late entrant to the field, India will be at the receiving end for some time, until we are able to offset the losses in merchandise trade with gains in services exports.

India’s trade balance with Thailand and Singapore has reversed since the signing of those FTAs. It first reversed with Thailand in 2005-06 and with Singapore since 2007-08. Should we wait five years for corrective action? The foreign trade policy has to counter these threats with aggressive marketing of exports and adopting strategies to add competitiveness to our exports. Why not add these countries in the focus market scheme to provide a further cushion to exports?