The Hindu Business Line : New Foreign Trade Policy — Will there be a real paradigm shift?

THE 2002-07 Export Import (Exim) Policy, coterminous with the Tenth Plan, is now being abandoned mid-way, with the United Progressive Alliance (UPA) Government planning to unveil a New Foreign Trade Policy (NFT) in its place. Even as the acronym Exim is sought to be substituted by NFTP, there are enough hints that the Government will continue to focus on the traditional thrust areas of textile, leather, gems and jewellery, handicraft, handloom and agriculture sectors.

Considering that successive Commerce Ministers — particularly after the advent of trade policy reforms first initiated by the present Finance Minister, Mr P. Chidambaram, when he was the Minister of State for Commerce in the P. V. Narashima Rao Government in the early 1990s — had left their imprint by undertaking incremental reforms, for exporters, the ground reality remained one of continued helplessness, operating as they have been in a high-cost economy. This is further compounded by the procedural complexities and operational glitches flowing largely from differences in interpretations between the officials of the revenue department and the the Directorate-General of Foreign Trade (DGFT), the licensing authority for all export promotion measures and other policy matters. Though there is some coordination between the two vital wings of the Government in serving the cause of exporters, the turf wars ill-serve the interests of trade and industry.

In this regard, it is revealing that the Commerce Minister, in a written reply to the Lok Sabha on August 23, said the Government proposes to strengthen the DGFT's redress mechanism to unlock government revenues stuck in litigation; from 1986 on Rs 142.43 crore remains locked up.

This in itself attests to the state of affairs in trade policy management, not to speak of the fact that the percentage of recovery of the said amount was a minuscule 0.0037 per cent the last three years. What price any policy reform devoid of enforcement rules?

All the export promotion schemes administered by the Government have inbuilt safeguards against abuse. Thus, licences issued under advance licensing scheme are subject to actual user conditions and are non-transferable, while capital goods imported under export promotion capital goods (EPCG) scheme are subject to actual user conditions till fulfilment of export obligation.

Yet, some exporters fail to fulfil their export obligations. For this, the rest of the exporters with a salutary track record should not be penalised or wantonly harassed by the Revenue Department. There had to be an effective mechanism to take care of legitimate grievances of the exporters.

It is in this context that the Commerce Ministry is working towards a broader framework of providing a tax-free regime for the exporting community by exempting them from a plethora of taxes right from production till shipment of finished goods.

It is a norm that taxes should not be exported and that exporters ought not to be saddled with too many indirect taxes that go into the products, or making them pay duty at different levels of manufacturing and then claim refund later through a convoluted process of moving relevant papers to the Revenue Department which only add to their transaction cost.

Adding up other levies imposed by States including octroi, sales tax, documentation, bank guarantee or furnishing legal undertakings (LUT), the transaction cost of the exporters goes up.

If the NFTP could even make a modest start in ridding exporters of the voluminous paperwork, the forthcoming five-year policy would be doing yeoman service to them.

This would also make exporting a national priority activity enabling the industry to remainfocussed on adding value and seeking new markets.

Within the exporting sector, all layers of 100 per cent export-oriented units or units located in special economic zones (SEZs) would lose their relevance if the authorities remove from exports all tax burdens.

Alongside, tariff reduction needs to be persisted with ifdomestic manufacturers are to have easy access to imported consumables for export production. Unless the exporter gets his raw material and other imported components, including machinery for technological upgradation and improvement in productivity to cater to bulk orders through economies of scale in operation, the business of export will continue to be difficult.

Efforts are also needed to make available funds, including foreign currency loans, at globally competitive interest rates. The Government must also address such infrastructure issues as as better roads, and modern ports and airports for faster movement of trade cargo. With infrastructure creation by the private sector not really taking off, the Government must put in place a regulatory agency to ensure a level playing field to draw private investments to the core sector.

It is noteworthy that the Prime Minister, Dr Manmohan Singh, should ask the Planning Commission to prepare a paper indicating a model regulatory structure for each area, such as power, roads, ports, petroleum, and so on. The Plan panel would look at gaps in the extant systems, compare them with the global best practices and recommend policy changes; only the sooner a viable strategy for an effective regulatory system in the infrastructure front is mapped out, the better for trade and industry.

With the Doha Development Agenda (DDA) being delayed by a year for want of finalising the agreements on a wide range of new areas, including services, in which India has a major stake in view of its success in software exports and information technology, the NFTP would definitely lay the base to consolidate gains.

It must perforce draw up a slew of strategies to make ample use of the demonstrated strength and competitive edge the country possesses in frontier areas of technology including bio-technology, audio visual communication, health care and hospitality services, accounting and book-keeping, project exports, transport services, consultancy and management services, and computer related services. Already, the share of services sector in exports was about 31 per cent last year.

As trade parleys entail give and take, New Delhi should provide easier market access for industrial goods from its trading partners, particularly from the developed countries, through calibrated tariff reduction, if it wants its concern on services exports addressed. Also, India should strengthen its trading ties with the traditional partners by entering into free trade or preferential trading arrangements.

It is a sad reflection that in a world of free trade agreements (FTAs) and Regional Trading Arrangements (RTAs), India has not struck up any worthwhile association with any of the major RTAs and it is only of late that it has begun to comprehend the virtues of entering into free trade pact with South-East Asian countries, after successfully experimenting one with Sri Lanka.

Even this has drawn flak from domestic industries affected by import of goods from the free trade partners, provoking them to plead for a review of all FTAs. What is overlooked in all these imagined fears is that such FTAs would enhance investment flows both ways with joint ventures and backward-forward linkages between India and Thailand industries helping to augment third country exports.

The NFTP should endeavour to draw the broad contours of the country's foreign trade policy, particularly in the light of the WTO negotiations as also the RTAs or FTAs it is considering.

A monograph by the Centre for International Trade, Economics & Environment (CUTS) on trade policy-making in India explored the lacunae in the system of relying too much on civil servants without much consultations with stakeholders who are presented with policy as a fait accompli.

Even as this study offers such options as making the Prime Minister's Office, the Planning Commission or the Foreign Ministry take active participation in multilateral trade talks, the time has come to stop confining the whole WTO-related issues to the Ministry of Commerce and Industry.

All eyes are on the Commerce Minister, Mr Kamal Nath, as he gets set to unfurl the new Government's paradigm shift in trade policy on August 31.

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