Expectations need to be scaled down

Updated: Mar 22 2006, 05:30am hrs
At a time when the need for the Union Budget and the Railway Budget is being questioned, it is no surprise that the relevance of the annual foreign trade policy (FTP) is under close scrutiny of economists and policy watchers.

The FTP which was known as the export-import policy before Union minister for commerce Kamal Nath decided to re-name it is announced without fail every year in March-end or April-beginning. And every year, without fail, export organisations submit their list of demands without serious hopes of them being fulfilled.

The reason for most proposals being turned down is simple. While the commerce ministry, more often than not, is empathetic towards the needs of exporters, it is often helpless because it is the finance ministry which calls the shots in matters of finance.

So, while the commerce ministry could agree with the need to continue income tax exemptions for exporters, introduce more incentive schemes and reimburse all domestic taxes paid by exporters, it cannot take any policy decision in these areas on its own without the blessings of the finance ministry. And the finance ministry, mostly, is tied down by revenue constraints.

One may then ask why indeed should we have an annual policy Why cant the finance and commerce ministries just decide before the announcement of the Union budget what limited sops can be given to exporters and importers and get it over with in the budget itself

While this may be an option, one cannot ignore the fact that apart from extending sops to exporters there is also a need for the government to improve the general environment in which exporters and importers do business. Reducing the number of forms to be filled for carrying out a transaction, connecting all relevant departments on-line, bringing nodal agencies under one roof and decongesting ports are just some of the steps that everybody acknowledges could be taken to make the life of exporters more easy.

It is, of course, not necessary for the commerce ministry to make announcements on improving logistics in an annual policy as the decision can be taken any time. However, the FTP could play the role of a monitor for ensuring that the government stays on track. An annual exercise gives more focus to the governments activities. It forces the ministry to lay down a future strategy.

To make the FTP a more productive exercise, both the commerce ministry and export organisations have to come to terms with the limitations of the process. Instead of wasting time on demanding tax benefits, exporters should come up with innovative suggestions which would not be difficult for the commerce ministry to implement.

Exporters could also give feedback to the government on existing schemes and suggest ways of improving them. For instance, the commerce ministry announced some years back its intention of introducing EDI (electronic data interface) for electronic clearance of documents. It has taken some steps in the direction in recent years, but exporters feel that a lot more needs to be done. The FTP gives exporters a chance to pin-point where exactly things are lacking.

An annual policy, in a nut-shell, is an opportunity for both the exporting community and the commerce ministry to take stock of the present situation and devise ways of improving things with the minimum resources available.