Quo Vadis, Mr Kamal Nath

Updated: Aug 19 2004, 05:30am hrs
The Export Import policy is so firmly embedded in our psyche that we rarely stop to question whether we need it. In theory, we have a five-year Exim Policy. Therefore, presumably, we have a medium-term framework in place. The Exim policy now requires restructuring because the context has changed dramatically. Traditionally, an Exim policy has provided import-relat-ed special facilities (ie, physical and financial benefits) to exporters in a regime where import access was restricted. But quantitative restrictions are out of the picture now, except in the rare cases of tariff quota rates.

Tariffs have also come down from their stratospheric level and are destined to fall further due to pressures of internal reform, negotiations under the Doha Development Agenda as well as under the various regional trading arrangements.

Second, the days when an Exim policy was formulated solely on the judgment of the commerce ministry are over. This began with the incompatibility of the provisions in the policy with the WTOs TRIMS regime. Most export incentives, even for developing countries, are in the amber zone under WTO dispensation. The DEPB Scheme, the cornerstone of the current Exim policy, is supposed to be countervailable. It is extremely difficult though not impossible to design an import policy which can bestow special financial benefits to exporters and still be WTO-compatible.

Third, in a liberalising environment, the policys role must necessarily change from that of a Santa Claus to that of a facilitator to global competitiveness. This is possible by making access to imports easy, which will reduce transaction costs. According to the Federation of Indian Export Organisations, transaction costs are anywhere between 6.8-14% in India, compared to 0.5-2% in China.

Fourth, the focus of the Exim policy has so far been on merchandise trade. Export of services came as an afterthought. In view of the increasing share of services in GDP and the new lease of life given to GATS negotiations, the services trade should get more than equal treatment, simply because it is in the growth stage.

Thus, the future role of an Exim policy is to integrate the domestic and international goods and services markets as seamlessly as possible. It must also have in place a set of rules to be used against unfair trade practices of foreign suppliers. These features should be apparent in the coming Exim policy. If this is not possible now, at least their relevance may be given recognition in the direction future policies would take.

This is not to say, however, that the export sector does not deserve a special dispensation. This is necessary because of lack of infrastructure. Also, the complex regulatory regime raises costs.

The policy should focus on Indias seamless integration with the world
Fiscal sops should go but exporters legitimate concerns must be addressed
The World Competitiveness Report 2004 observes that while India has improved its relative position in terms of attributes related to corporate efficiency, it has lost ground where they relate to policy regimes and infrastructure.

Indian exporters saw the rupee rise last year. Accusto-med as they are to keeping their forex positions uncovered to make money out of exchange rate depreciation, it was almost like a culture shock. Though the problem has since ceased to exist, there is an irony in the situation.

The export-import coverage ratio in fact deteriorated last year, but non-trade receivables and the behaviour of the US dollar caused the rupee to rise. Exporters are therefore justified in asking for a dollar window to facilitate access to packing credit facility in foreign currency. Whether this can be done out of the forex reserves is an issue which can, however, be debated.

Exporters also feel let down by this years budget, especially because tax exemption on export profits under section 80 HHC has not been extended. On top of this, a 2% education cess will raise the cost of imported supplies. The new policy must address effectively all short-term concerns of exporters. But the real task lies in designing a policy which looks at the future needs of integrating the Indian economy with the world and provides medium-term stability.

The writer is honorary dean of the Institute of International Trade & Law