The Hindu Business Line : Foreign Trade Policy — Long on intent, short on strategy

Though bristling with schemes and plans, the Foreign Trade Policy neither offers convincing steps to substantially cut transaction costs nor spells out international economic strategy.

THE Foreign Trade Policy (FTP) unveiled on August 31 hopes to double the country's percentage share of global merchandise trade within the next five years, while ensuring export-oriented economic growth and employment generation. The easy part of the Policy is the identification of the special focus sectors.

These are agriculture, handlooms, handicraft, gems and jewellery, and leather. In agriculture, the focus is on fruits, vegetables, flowers, minor forest produce, and their value-added products. Development of Agri Export Zones and duty free import of capital goods are part of the package for agriculture.

Handlooms, handicraft, gems and jewellery, and leather have all along been part of the export policy discourse. What, then, is the value addition in FTP? In handlooms, for instance, the FTP says that "New Handicraft SEZs shall be established, which would procure products from the cottage sector for finishing and exporting."

Duty free imports of select inputs such as gold of 18 carat and above are to be allowed to promote gems and jewellery exports. The FTP also notes that cutting and polishing of gems and jewellery will be treated as manufacturing for the purposes of certain exemptions under the Income-Tax Act.

The FTP is not just commerce; there is considerable linguistic enthusiasm expressed in regard to developing Pragati Maidan. It is to be transformed into a "world-class complex... (with) brand new, state-of-the-art, environmentally-controlled, air-conditioned exhibition areas... a large convention centre to accommodate ten thousand delegates... multiple and flexible hall spaces, auditoria and meeting rooms with hi-tech equipment... year-round food and beverage destination... with a large number of outlets covering all cuisines and pricing levels... (and) a multi-level park to accommodate over nine thousand vehicles."

The FTP is not lacking in the provision of promotional measures. For instance, the Department of Commerce has formulated a scheme called Assistance to States for Infrastructure Development of Exports (ASIDE). Funds under ASIDE will be available for States to develop export-oriented infrastructure.

In addition to ASIDE, the Department also provides direct assistance to exporters under the Market Access Initiative (MAI) scheme and the Marketing Development Assistance (MDA) scheme. Then there is a scheme for recognition and promotion of "Towns of Export Excellence," and a slew of facilities and privileges for various grades of "Star Export Houses".

For promoting services exports, the FTP envisages the setting up of the "Export Promotion Council for Services". Many exporters of services will be allowed duty credit entitlements under what is called the "Served from India Scheme (SIS)". Similar to the SIS, there is the Target Plus Scheme (TPS), which allows duty credit entitlement (as a percentage of the incremental growth).

Special Agricultural Produce Scheme (SAPS) also has duty entitlement provisions to promote export of fruits, vegetables, flowers, minor forest produce, and their value added products. Also, FTP has one whole chapter (Chapter 4) on duty exemption and remission schemes and another (Chapter 5) on the Export Promotion Capital Goods Scheme.

The FTP has special provisions for Export Oriented Units, Electronics Hardware Technology Parks, Software Technology Parks and Bio-Technology Parks; and the much-touted Special Economic Zones. The Chapters concerned provide the relevant rules and regulations, notably in regard to their operations (sales in and purchases from) in the Domestic Tariff Area.

The Commerce Minister's preamble to the FTP outlines a strategy for export growth that includes the unshackling of controls, simplifying of procedures, neutralising incidence of all levies and duties on inputs used in export products, identifying and nurturing special focus areas with scope for additional employment opportunities, facilitating technological and infrastructural up-gradation, and "activating our embassies as key players in our export strategy and linking our Commercial Wings abroad through an electronic platform for real time trade intelligence and enquiry dissemination."

A close look at the FTP shows that the policy is rich in words and one must wait for actions and results. There is bound to be considerable success in regard to setting up more zones (at times it could mean plunder of valuable land) and spending crores of rupees in the name of facilitation (including achieving a lot of Pragati on the Maidan).

One is at a loss to decipher how the FTP will help in unshackling of controls and simplifying procedures. The best way to gauge them is by looking at how far the interface of exporters with government departments, officials and procedures is minimised in order to bring down the transaction cost. It is difficult to see effective and convincing links between the FTP and substantial reduction in transaction costs.

The FTP indeed identified once again the focus areas — about the same as on previous occasions when trade policy announcements were made. Identification of focus areas, however, is not the same as articulating an effective international economic strategy. The FTP had taken one exemplary step insofar as the preamble speaks about "activating our Embassies as key players in our export strategy... " and the idea ends with the preamble.

Exporting successfully involves at the government level, the articulation of an international economic strategy — comprising the diplomatic community's efforts on such endeavours as visa-free entry for accredited representatives of major importers of goods and services, arranging for export oriented foreign investments to produce and export form the Indian soil, exploring vibrant free trade agreements in goods and services, and lining up domestic investor interest for producing exclusively for export even if those goods are not part of the Indian consumption basket.

To illustrate the last point, one should note that a few decades ago Japanese exported nylon saris to South-East Asia and West Asia for sale to discerning Indian tourists and residents, notwithstanding the fact that the Japanese women never patronised the sari.

Early this year I found in the famed Barnes and Noble bookshops in the US such classics as Shakespeare. They are beautiful pocket books with gold coating on three sides. They are priced low and to sell. They were made in China.

The preamble to the FTP also speaks about "linking our Commercial Wings abroad through an electronic platform for real time trade intelligence and enquiry dissemination." If taken seriously, this is a very important activity given that all sorts of non-tariff barriers and other innovative obstacles to trade will takeover in the wake of reduced tariffs under the WTO regime.

We need to know first who is buying what and from whom and, then, why. For the first, one may need to look no further than the Internet; UN data are readily accessible as long electric power and phone lines cooperate. For the second, the Internet will be of limited help and needed are dedicated Foreign Service officers supplying the right information at the right time.

(The author, formerly with the World Bank and the National University of Singapore, is Professor Emeritus, GITAM Institute of Foreign Trade, Visakhapatnam. He can be contacted at bhanoji@vsnl.net)