Policy should capture all aspects of foreign trade

Updated: Mar 22 2006, 05:30am hrs
The annual supplement to the foreign trade policy (FTP) to be announced shortly has again generated the debate on its relevance. Some economists argue that the practice should be scrapped. Much of the controversy is generated due to a misconception that the ritual of FTP belongs to an era of quantitative restrictions.

If that be the case, all the developed and developing countries which hardly have any restriction on imports or exports should not have a trade policy. However, such countries do have trade policies with wide canvasses bringing within its ambit, production, supply and marketing of export goods. An ideal FTP should address factors affecting both the supply and demand side of exports.

Indias export potential remains considerably unfulfilled because of infrastructure bottlenecks such as power shortage, port handling facilities, delay in transportation and poor communication facilities. These affect the delivery schedule, and hurts the image of the country as a reliable source of supply.

The extent to which the new policy could remove these constraints will to a great extent address the supply side problems of exports.

Foreign direct investment (FDI) has played an important role in the growth of manufactured exports from South East Asian nations. In contrast, FDI in India is domestic market seeker. The share of multinationals in Indias exports is at best between 5%-7%.

Multinationals can play an effective role in promoting Indias manufacture exports with re-location of production base in order to maintain their competitiveness in the face of rising wages and other costs in their home countries.

Indias ability to attract export oriented FDI will determine the magnitude of Indias exports in long term. The FTP should provide a conducive environment for attracting export oriented FDI in the country.

Our competitiveness have also been adversely affected by the failure to diversify the composition of our exports. South East and East Asian countries have rapidly diversified their export structure in favour of technologically advanced products. The market for low technology goods are highly price competitive and exchange rate would affect the competitiveness and profitability of such goods. The FTP should, therefore, encourage R&D activity which will help both in productivity improvement and product innovation.

For encouraging brand promotion the India Brand Equity Fund needs to be revived with further contribution both from the government as well as corporates. A new scheme may be framed to promote brands and assistance under the scheme may be made available to such brands which are already well established in the domestic markets.

On the demand side, there are a multitude of factors which are likely to affect Indias exports. The growth rate of world economy and world trade will influence the overall demand for Indias exports. However, it would be encouraging to note that except for the year 1998, our growth rate in exports exceeded the world export growth rate.

Apart from Indias trade relations, the growth prospects in the specific regions may also affect the demands for Indias exports. We have to be aggressive in the regions important for our exports such as North America, the EU, Middle East, South East Asia, Latin America, Africa and CIS countries. The Focus Area policy (Focus LAC, Focus Africa, Focus CIS, Focus Asean) announced by the department of commerce in the past needs to be merged in the Foreign Trade Policy.

The government should come up with a specific strategy for promoting certain thrust products and exports to certain less explored potential markets. With more than two third of the world trade amongst FTA countries, it makes sense to bring FTA under FTP as the objective of the FTA is basically to promote trade amongst member countries, an objective akin to the objective of FTP.

If all activities relating to the Special Economic Zones could be brought under a single SEZ legislation, there is no reason why all aspects of foreign trade cannot be brought within a single comprehensive foreign Trade policy.

The author is president, Federation of Indian Export Organisations