Handicraft, farm exports are key areas

Updated: Mar 22 2006, 05:30am hrs
While unveiling the Foreign Trade Policy (FTP) in August 2004, the government spelt out its vision to double Indias share in world trade by 2009, and to focus on generation of additional employment in the process. Specific strategies were announced for achieving these two objectives. With the annual supplement of the FTP scheduled to be announced on April 7, it may be useful to take stock of the progress achieved so far and suggest what further fine-tuning is required in certain aspects of the overall strategy.

To achieve the objective of doubling Indias share of global merchandise trade by 2009, an average annual growth rate of about 16% was envisaged. While in the first year of the FTP, exports grew by 24%, Indias merchandise exports during April-February 2005-06 are valued at $ 88.7 bn which is 26.34% higher than the level during the corresponding period last year.

Barring unforeseen shocks in foreign markets, India appears well on course to achieve, and possibly surpass, the 16% annual growth target.

What are some of the sectors which require further focussed attention in the forthcoming FTP Agriculture and handicrafts are important not only from the perspective of potential for exports but also from the view of employment generation. The value of agro-exports from India has increased phenomenally, having gone up to $ 8 bn - an increase of 70% in 5 years- from a level of $ 5.6 bn in 1999-2000. However, the share of agricultural exports in Indias total exports is a little over 10%.

For export growth to have significant pro-poor impacts, there has to be an increase in exports of top end agricultural products from India, thereby improving the income of farmers. Despite facing tough sanitary and phyto-sanitary (SPS) requirements in various countries, India has recently succeeded in obtaining market access for mangoes, bitter gourd and grapes. Market access for meat in Saudi Arabia has also been secured.

While these successes are promising, there is a need to put into place mechanisms which would enable small agricultural exporters to comply with stringent SPS requirements in foreign markets. The forthcoming FTP could seek to address this.

Handicrafts are the second biggest source of employment in rural and tribal economy. While exports of handicrafts from India have crossed $ 2.9 bn, registering a growth of 29.07% during 2004-05, innovative initiatives are required if India has to increase its share in the global market for gifts and handicrafts which is presently to the tune of more than $ 235 bn.

Apart from buttressing existing export promotion measures, the forthcoming FTP could consider providing incentives for geographical indications registration of handicrafts and improving export returns through better positioning and brand building.

Addressing the shortcomings in the DEPB scheme which have resulted in imposition of countervailing duty in foreign markets and announcing a replacement scheme in the FTP is another area of challenge for the government.

Imposition of countervailing duty on imports not only disadvantages the Indian exporter with respect to competitors from other exporting countries, but also vis-a-vis the producers in the domestic market of the importing country. While there may be administrative imperatives from the perspective of implementation which may determine certain elements of the new scheme, the requirements of WTOs Subsidies Agreement should be given due consideration.

The forthcoming FTP could consider a new scheme which limits customs duty concessions to imported goods that are consumed in production of the exported goods. The new scheme should provide for a suitable verification system to check whether the imports are actually consumed in the production process and in what amounts. Further, the scheme should state in clear terms that the overall duty neutralisation would be equal to or less than the indirect taxes paid on the final product or on the inputs consumed in the production of the exported product. To facilitate implementation and enforcement, bonded warehouse mechanism and review of records of sampled exporters could be considered.

If these threshold requirements are not met by the new scheme, there is a risk that Indias exports would continue to face countervailing duty. In addition to the pronouncements in the FTP, the overall objective of enhanced trade share and additional employment generation can be met only through a more comprehensive approach which will address cross-cutting issues like post-harvest infrastructure, logistics, credit, customs clearances.

This requires institutionalising mechanisms for coordination between the commerce department, other ministries and state governments. It would be useful if the forthcoming FTP were to spell out in detail the main bottlenecks and the agencies involved, so that targeted action can be taken by concerned departments to make trade a vibrant engine of growth.

The author is senior trade officer, Unctad. These are his personal views