FE Editorial : Trading places

Written by The Financial Express | Updated: Aug 29 2009, 02:33am hrs
The commerce minister announced the governments trade policy for the next five years on Thursday in the backdrop of ten continuous months of declining exports. Exporters were awaiting the policy keenlythis was their big hope for a massive government bailout that could solve their problems. In the end, though, the policy announcement probably left exporters disappointed. But it did a very good job of recognising realitythe scale of global recession and contraction in Indias export markets havent happened in recent historyand followed that reality by recognising the limited amount the government can do under the circumstances. After all, the government cannot make up for markets that have been lost through policy actionsnot in monetary terms, in any case. Interestingly, the commerce minister sounded more ambivalent about the green-shoots-of-recovery hypothesis than many of his other ministerial colleagues, perhaps signalling a warning to exporters that difficult times still lie ahead. Perhaps, that is why the minister said that most measures announced would be reviewed after two years, and the trade policy for the remaining three years of the five-year period may be modified at that time. This time around, while extending the timeline of some sopstax exemptions and duty refundand introducing some limited new sops like concessions on importing capital goods, the minister chose to rightly focus on the bigger picture.

The real boost to trade will come not through fiscal sops, but through newer markets. And the commerce ministry seems to have understood that. The minister suggested that Indian exporters look to markets beyond the traditional US, EU and Japan, all of which will be sluggish for a while. He pointed to the free-trade agreement with Asean and progress in the Doha Round as two policy initiatives that will boost trade. He reiterated the governments commitment to special economic zones. That is the right approach over the medium term. Government subsidies and support are simply not enough nor desirable for any length of time. The government has set itself ambitious targets15% rate of export growth in FY 2011 and doubling of Indias exports by 2014. The government did not quite achieve the targets it announced in its last trade policy five years ago, but then 2008-09 turned out to be an unexpectedly bad year. To meet the next target, the government will need a quick recovery in its major markets in developed countries. It also needs to ensure that exporters use this period of lull to upgrade technologies, cut costs and become more competitive and ready to exploit the turnaround when it comes.