Slipstreaming foreign trade

Updated: Feb 5 2002, 05:30am hrs
We now have a medium term export strategy that will push up Indias share of world exports from 0.7 per cent to 1 per cent in 2007. As Sanjaya Baru has remarked in these columns, werent we supposed to get 1 per cent by 2004 We will now touch $80 billion in 2004. Once upon a time, in another strategic exercise, commerce ministry projected $100 billion in 2001. Exports will now grow at an average rate of 11.9 per cent. Naturally, the Planning Commission is upset. 11.9 per cent export growth isnt enough for GDP growth of eight per cent. You need at least 15 per cent export growth.

All these figures remind me about a story I heard for West Bengal. I honestly dont know whether this story is true or false. Apparently, in a village in West Bengal, in a census exercise, seven rhinos were found. This led to general consternation. Why were seven rhinos wandering around in a village The truth was the following. Bengalis pride themselves on their knowledge of English. There were indeed 20 geese in the village, 13 female and 7 male. To display his knowledge of English, the reporting officer reported this as 13 geese and 7 ganders. The superior, whose knowledge of English was less than perfect, interpreted the ganders as rhinos. So much for government figures.

Where will India do well in exports The answer is, no one knows. Market forces will determine the answer. But if you have to answer the question, you can only find an answer by considering the present export basket, although present comparative advantage may have nothing to do with future comparative advantage, especially since present trade flows are often distorted by government policy. Anyone who knows anything about Indias exports will however list engineering, electronics, electrical items, textiles and garments, gems and jewellery, chemicals and pharmaceuticals, agricultural products, plantation, marine products and leather. The only item you might not list is cement. Lo and behold. These are exactly the seven major sectors identified by commerce ministry in this new strategic exercise. Remember the 15 by 15 thrust product and market exercise done by commerce ministry when P Chidambaram was the commerce minister Why 15 by 15

There is an apocryphal story that the then economic adviser was fond of crosswordsand crosswords typically have a 15 by 15 grid. This time, commerce ministry has done better. We have a 220 by 25 grid. In other words, the seven major product groups are further sub-divided into 220 products and 25 countries are potential markets deserving special attention. The 25 countries are also divided into concentric circles first tier, second tier and so forth. So South Africa may not be first tier in general. But it is the first tier for trying a regional trading arrangement. At least during Mr Chidambarams time, there was some point in identifying thrust products and markets. You could vary some incentives across sectors. Now you cant. Discretion has disappeared.

So what is the point to this identification Why bother But having persisted with this idea of selective identification, you go round and round in circles. Hence, for leather, you must scrap small-scale sector reservation. But for garments, you neednt de-reserve. Instead, hike the threshold investment limit from Rs 1 to 5 crore for knitted garments. (I am slightly confused here. I thought woven garments had already been de-reserved from 1 January 2001 and for knitted garments, the threshold limit was hiked to Rs 5 crore in October 2001. But Commerce Ministry must know better.) You must have World Trade Organisation compatible tax rebate schemes. For that, you must have value added tax. Fair enough. But excise duties dont belong with VAT. So what is this talk of lowering excise duties on key inputs required for exports

VAT rates, once they are implemented, will also be standardised. How do you vary VAT or excise rates on inputs selectively For that matter, how do you selectively vary import duties on export-related imported inputs Arent import duties going to be unified If one considers the Arvind Virmani Committees recommendations, they wont even vary according to raw materials, intermediates or finished goods. Or take rigid labour laws. You must make the labour market flexible for garments. Elsewhere, it doesnt matter. Persuade Bangladesh and Sri Lanka to reduce import duties on cement. For other products, these are presumably not important markets and south Asian free trade area will presumably not happen. Introduce agro reforms only in agri-export zones.

There are also trite comments on marketing. Enter new markets. Diversify export portfolios in existing markets. Sometimes, do both. How very profound! Maintain the Real Effective Exchange Rate at a level appropriate for ensuring price competitiveness of exports. How does one determine an appropriate REER And how does one ensure depreciation By clamping down on all capital inflows Thank God, commerce ministry is not asking for separate REERs on export related imports. Since WTO commitments are at six digit level, switch tariff classification to eight digit so that you can play around and protect sensitive items threatened by quantitative restriction removal.

The mindset continues to be the selective one. In the pre-liberalisation era, you could liberalise selectively. But now that one has liberalised across the board, such selectivity is dysfunctional. Export strategies are dysfunctional and irrelevant. The best export strategy is domestic reforms infrastructure, labour markets, agriculture, procedures and so on. But to accept this is tantamount to recognising that there is no need for a specific export strategy and the economic advisers office (which will now be the nodal point for implementing this strategy) may as well be wound up. The Expenditure Reforms Commission should have identified this a prime candidate for downsizing. Sanjaya Baru made the same point, except that he called his article Mainstreaming foreign trade. I prefer slipstreaming foreign trade. Ensure domestic reforms. Ensure GDP growth. Export growth will follow in the slipstream. We will get a 15 per cent growth and a 1 per cent market share without strategies. Conversely, if domestic reforms dont happen, we wont get $ 80 billion in 2004. Despite strategies. The sense of deja vu is familiar.