...The More Things Remain The Same

A pleasant surprise awaited all those at the Export-Import Policy conference on April 13: commerce minister Ramakrishna Hegde. The new government had organised its first major economic policy announcement well. The press conference was on at the same time in the four metros. A big-screen monitor allowed questioners from all centres their turn. Hegde walked in at 11.30 am sharp, read out his policy, answered questions deftly without recourse to secretaries or other officials, was openly critical of his predecessor as well as the export mess, and took his leave before lunch. But not before making another small announcement: this year the Exim Policy has gone on the inter-net. And so will all future decisions taken by the commerce ministry and the Directorate General of Foreign Trade (DGFT).

Contrast that with this. A notification issued after the announcement of the Exim Policy 1997-2002 took a year to reach the Engineering Export Promotion Council (EEPC), an exporters' body under the ministry of commerce. Still, it didn't quite make it. EEPC sources say the notice reached just before Central government offices closed on April 7 for a five-day weekend. As a result, the notification could be 'offi-cially' entered and sent to exporters only last week! By which time Hegde had announced his new Exim Policy.

The more things change, the more they remain the same. The BJP government's amendments to last year's export-import policy has kept to the beaten track: some 340 more items to be freely imported under the Open General Licence at 30-40 per cent duty levels; another 300 items, so far banned, can be imported at high duty; import duty relief for 300 more export items; the five per cent special customs duty announced by P. Chidambaram scrapped; capital goods imports by exporters further liberalised; an anti-dumping directorate-general set up; and export procedures simplified to achieve a growth rate of 20 per cent. The surprise: despite its anti-WTO bluster, the Centre kept its promises to the trade body in spirit if not in letter.

In fact, by pushing for a more liberal trade regime and increasing the number of importables (removing quantitative restrictions, in WTO language), most of which are consumer goods, Hegde has proved that he may not be a visionary, but he is more pragmatic than swadeshi. Especially as the announcement of the Exim Policy changes coincided with the WTO meeting in Geneva to review India's progress on trade commitments. To turn back at this point would have put India in a tight spot in Geneva.

The government has taken pains to emphasise that the policy changes do not amount to a dilution of swadeshi. In an announcement that for the first time plays down its own achievements, the DGFT says that most of the items shifted to Open General Licence (OGL) have anyway been freely importable under the Special Import Licence (SIL). Secondly, the imports of these items were so insignificant that it does not make much difference whether they are in or out of OGL. Which just shows that the country has been producing these items and meeting the domestic demand efficiently. Thirdly, the customs duties on these items are high enough to ensure that the interest of the domestic industry would be protected.

THE list of items that can now be imported, either freely or under SIL, is interesting. And is indeed diverse:video cameras, camcorders, assorted furniture, cooking stoves, shaving systems, dolls and games, paints and enamels, cotton, soaps, detergents, a variety of fruits, vegetables, seafood, mineral water and soft drink concentrate along with rubber bands, sin-door and bindis, kokum oil, sandalwood oil, sweetmeats, pawa and mudi, and rickshaws. Clearly, by including the latter items (why should anyone want to import bindis and mudi and from whom?), Hegde has tried to kill two birds: shortening the negative and restricted lists as much as possible without seeming too radical, while appeasing the swadeshi brigade.

For the average consumer, the import liberalisation may not lead to a price advantage except in some items like processed foods, feel storeowners. The Pampers diaper or Lego toy may not turn much cheaper than black-market items, but will be widely accessible. The bottomline: if the rich Indian wants to blow money on costly imported stuff, let the government make money out of it through duties. Domestic products will stay cheaper than the foreign, and will not be under any threat. Besides, the decision to include items like onions or fruit juices under OGL is a clear move to protect consumers.

Where the exim policy fails is in measures to boost exports, despite its tall claims. True, more exporters will now be allowed to import capital goods cheap under the Export Promotion Capital Goods (EPCG) scheme in electronics (hardware), textile, leather, gems and jewellery, sports goods, food processing industry, agriculture and allied products. In software, where exports grew by 50 per cent even last year, more exporters will be allowed to import capital goods at zero duty. Smaller firms are now allowed to claim facilities of the various export houses' schemes.

But there are no new export incentive schemes. The thrust instead is on a 'trust-based' approach, by changing the attitude of customs officials to 'no-questions-asked' export promotion and also of exporters, who have found selling to the domestic market more lucrative in recent times. Says Hegde: "We have framed the new policy keeping in view that it would take some time to improve the export environment to achieve high growth. It cannot be done overnight and there is no short-term solution. It has to begin by changing the attitude of our exporters."

Export growth in 1997-98 has been 2.5 per cent in dollar terms, with the trade deficit already gaping at $6.5 billion. The main contributors continue to fare badly. Gems and jewellery grew by just three per cent, while agriculture and allied products dropped by 12 per cent and leather by 9 per cent. Says Sunder T. Vachani, chairman, Electronics and Computer Software Export Promotion Council (ESC): "With our best efforts and with government support, I cannot see anything beyond 10-12 per cent this year."

Hegde blames India's poor export performance on the erosion of competitiveness of exporters, complex procedures, delays in claim settlement, increasing transaction costs, high cost of export credit and infra-structural constraints. He can do little about the last, at least not until his proposal for setting up a new ministry of infrastructure on the lines of the Japanese Ministry for Internal Trade and Industry (MITI), is implemented. As Hegde said: "The total export sales of 500 top corporates constitutes less than 10 per cent of their sales. For public sector undertakings, this is less than four per cent." To take this to 20 per cent, Hegde will initiate a dialogue with the top houses.

But ultimately, a mere tinkering with rules may not be enough to push exports to top $40 billion. The exim policy changes show the BJP regime has not done its homework well. With revenue giveaways expected to result in a loss of over Rs 10,000 crore to the exchequer, a figure which can be compensated only if trade volumes rise sufficiently, Hegde has clearly taken a big risk. Also, considering the 3,000 more items left on the restricted list plus the negative list which will have to go by the end of 2002, the government has also fallen short of WTO commitments. So stay tuned for phase two of trade reforms. And it had better be fast.