What Ails The Exim Policy

Updated: Apr 2 2003, 05:30am hrs
The commerce ministry has come out with an annual Exim policy even as the country has a five-year policy in place. The minister has justified such annual exercises on the basis of the dynamism of international trade and markets. Surprisingly, this insight was not available when the five-year policy was enunciated last year. Annual reviews could have been incorporated as a requirement in the Exim policy, 2002-07. No matter what the stated merits of such annual policy-within-policy pronouncements are, lets look at the present annual version.

The annual policy seeks to explicitly provide impetus to services exports and creation of special economic zones (SEZs). The policy further treats agriculture exports as an area of core competence. The other pronouncements pertain to the benefits that Indian industry and government routinely go through year after year.

The importance of rigour and comprehensiveness in policy formulation and the consequences of ignoring them get highlighted when one looks at the way every version of the Exim policy has been formulated. Whenever a policy seeks to fundamentally change the way tasks get performed, it is essential that it takes a holistic view of the context in which it such changes are sought. The concept of SEZ creation is a telling example of the absence of rigour in policy formulation.

SEZs are supposed to be countries-within-countries with laws and facilities comparable to the best internationally. Although it is difficult to understand which particular international standard these zones would benchmark with, they would definitely differ from what prevails locally. It is contemplated that SEZs would have flexible labour laws, a tax-free environment, critical factor inputs at international prices, and are likely to be managed by corporations, not the government. Companies would thus be able to perform at globally competitive levels and exports would increase.

This linear logic is attractive but it is debatable whether the process of creation of such a Shangri-la for competitive excellence is as linear. It is not yet clear from any of the policies of the government whether SEZs are exempt from labour laws such as the Industrial Disputes Act, 1947, nor is their status in the context of the 74th Constitutional Amendment Act clarified. If these entities are to be autonomous vis-a-vis various aspects of the laws of the land, then it is important to define the constitutional validity of their existence. It is not prudent to leave these issues to be resolved through due process of law when it is possible, through rigorous institutional analysis, to identify policy prescriptions, a priori. If SEZ policy lacks the necessary detailing, SEZs may just emerge as 21st century versions of the industrial estates of the 1970s.

Services sector is beset with problems of non-availability of information. This has been acknowledged in the annual policy document of the ministry. Policy formulation in an informational vacuum could be similar to searching for a non-existent black cat in a dark room. Before the country attempts to strategise for increasing service sector exports, other than software, it is essential to strengthen the information state in this sector on a priority basis. I find it difficult to appreciate the commerce ministrys enthusiastic identification of this sector as an engine of growth without even having reliable sectoral information. Reliable and almost real-time information is an essential prerequisite for dynamic policy response.

To formulate winning policies in a dynamic world it is necessary to develop frameworks based on the prevalent institutional environment and arrangements. Weaknesses in policy frameworks and chronic informational gaps cannot be substituted by frequency of reviews.

(The writer is a management consultant based in Mumbai)