Column : Protect from protectionism

Written by Biswajit Dhar | Updated: Jun 6 2012, 06:33am hrs
FTP hasnt tackled the problem of non-tariff barriers that could potentially affect Indian interests

The unveiling of the annual supplement to the Foreign Trade Policy (FTP) 2009-14 would generally have received much less attention but for the fact that this is an exceptional phase for the Indian economy. The country needs to enhance its engagements with its trading partners in particular, and improve the conditions offered to the exporters so that they are able to seek new markets, while at the same time increasing their presence in some of the more dynamic regions. There was, therefore, a need to have a re-look at the policies and instruments that can steer the exports in the desired direction.

The additional reason for the re-look at the FTP comes on the back of the reports that international trade faces greater challenges from protectionist forces than in the previous years. A joint surveillance report of the World Trade Organisation, the United Nations Conference on Trade and Development, and the Organisation of Economic Cooperation and Development unveiled recently has concluded that protectionist forces have become stronger since the beginning of the year, and this could seriously undermine the pace of the recovery of the global economy.

In keeping with the imperatives, a number of steps have been taken to promote exports in the supplement to the FTP that the commerce minister has announced. A number of labour-intensive sectors (such as toys, sports goods, processed agricultural products and ready-made garments) can now benefit from the 2% interest subvention scheme, hitherto only available to handicrafts, handlooms, carpets, and small and medium enterprises.

The zero duty Exports Promotion Capital Goods (EPCG) Scheme, which was introduced to encourage technological up-gradation of the export sector, has been extended to the end of the current financial year. Besides, the scheme has been enlarged to cover units that are currently availing or have earlier availed the benefits of Technology Up-gradation Fund Scheme (TUFS). At present, the EPCG Scheme exempts a number of sectors (like handicrafts, handlooms, cottage sector, tiny sector, agriculture, aquaculture, horticulture, pisciculture, viticulture, poultry and sericulture) from the condition of maintenance of average level of exports. Three new sectors (carpet, coir and jute) have been included in this list of beneficiaries.

In order to promote exports from the northeastern region, export obligations under the EPCG scheme have been fixed at 25% of the normal export obligation. Additional benefits have been provided to export of products through the notified Land Customs Stations in the region.

A number of export sops have been offered to products using green technology and those that are labour intensive in nature. Agriculture has also received attention through enhanced support for infrastructure development.

While the export sops are certainly welcome, the FTP also needs to create conditions for facilitating foreign trade. Some steps have been taken through the simplification of procedures, which have been extended through a few more measures that have been announced today. But, given that the cost of doing business is considerably higher in India as compared to its competitors, a fact that the World Bank has been putting forth in its annual surveys, there is an urgent need to remove the administrative and other bottlenecks in a mission mode.

Policymakers have to focus their attention on reducing transaction costs if India is to improve its presence in the global marketplace, and it is here that the government needs to make an assessment as to how these costs can be progressively reduced in coordination with administrative ministries. While some of the problem areas, such as procedural inefficiencies, can be fixed in the short run, others such as infrastructural deficiencies can only be addressed through a medium-term strategy.

An important area that the FTP has not considered thus far is development of a coordinated strategy to address the problem of non-tariff barriers (NTBs) that could potentially affect Indian interests.

Government and industry seem to be yet unmindful of the fact that the tariff regime is pass and that NTBs are the flavour of the times. In recent years, NTBs have been proliferating at a rapid rate, evidence of which is available from the notifications that World Trade Organisation members are issuing to announce the imposition of Technical Barriers to Trade and Sanitary and Phytosanitary measures or food safety standards. Recent evidence shows that the past few months have witnessed one of the steepest increases in the use of these standards. Perhaps, and more importantly, the use of these standards is no longer the exclusive preserve of the developed countries; some of the advanced developing countries are also using them to a good measure.

These are quite a few challenges that India would have to cope with if it has to maintain its place in the global market. At this juncture, the country seems to lack a holistic approach to tackle the NTBs, and this lacuna needs to be addressed urgently.

A mechanism needs to be established in a public-private partnership mode, which should have two components. In the first place, there must be a system to obtain information about the NTBs being imposed by Indias trade partners. And, secondly, a consortium of agencies, including the administrative ministries, should help develop strategies to address challenges posed by these trade barriers.

The author is director general, Research and Information System for Developing Countries