Business:Exim Policy: Radical at Last

The commerce minister has proposed sweeping reforms to stem the slide in exports -- and if he's able to deliver, trade will respond favourably.

That crisis is the best propellant for reforms in India was once again proved true on March 31. Faced with persistent instability on the political front and shattering export performance (0.41 per cent growth in the first nine months of the fiscal year 1998-99), Commerce Minister Ramakrishna Hegde unveiled a radical revision to the five-year Export Import (Exim) Policy (1997-2002). Radical, if one considers his past lacklustre policy initiatives -- the Exim policy revision of 1998 and a package of incentives announced in August 1998. Neither had offered more than procedural simplifications; and neither could stem the slide in India's export in 1998-99.

But Hegde turned a new leaf this year. Says B. Bhattacharyya, dean (research) at the Delhi-based Indian Institute of Foreign Trade: "In its limited scope, this year's Exim policy revision has done its best to put India's export, and thereby the trade, back on a high growth trajectory." The boldest move in the policy is import liberalisation. In one shot, import of 894 products and commodities has been freed from licensing (they can be imported after payment of customs duty) and 414 other items have been moved to the Special Import Licence (SIL) list. SILs are licences issued to certain exporters which entitle them to import some specific products freely.

What Hegde has Done	And what he intends
Lifted restrictions on imports of 1, 308.	Fast liberalisation; meet WTO commitments.
Appointment of an ombudsman.	Quick resolution of disputes.
Creation of Free trade zones.	De-bureaucratisation of exports.
Official recognition to services exports.	Thrust to sunrise exports.
A new annual advance licence scheme.	Make import of inputs easier for exporters.
Special green card for exporters.	Motivate exporters.

To be sure, India has committed to the World Trade Organisation (WTO) to abolish licensing of imports by the year 2003. To that end, Exim policy revisions in the past too have been freeing imports. The number of items freed this year are not only more than double the 340 items freed in 1998 but are also much more than India's commitment to WTO. In fact, only 665 items now remain in the restrictive list of imports. Says Hegde: "It's always better to do today what you have to do tomorrow."

The Commerce Ministry is also prepared to take on the swadeshi lobby which is likely to raise fears of an import deluge. Explains a senior official of the Directorate General of Foreign Trade: "In the past years, opening up of imports has not been followed by a surge in imports. Imports respond to market situation, not whether an item is freely importable or not." Besides, the Exim policy has only freed the imports from licensing, not from customs duty. In fact, most of the delicensed consumer products will attract the peak customs duty of 40 per cent plus an additional countervailing duty. Besides, in freeing a host of food products -- including onions -- the Exim policy has also addressed the question of food security. Given a sudden fall in availability of food products, their imports can be undertaken without any bureaucratic delays.

But will the opening up of imports help revive exports? Directly no, but indirectly yes. Rooted in the closed and controlled economy of the past, the objective of erstwhile Exim policies was to enable exporters access imports and capital at lower than market rates so that they could compete globally. In other words, Exim policies in the past attempted to create a low cost and efficient export industry around a high cost and inefficient domestic industry. However, with the focus of economic policy now being shifted to make the entire industry competitive, the raison d'etre for an exclusive policy for exports has diminished. Says T.K. Bhaumik, senior director, Confederation of Indian Industry and a trade policy expert: "By liberalising imports, Exim policy will make Indian industry competitive, which is the only way to push exports to the high-quality low-cost spectrum."

Hegde's other bold bet is to convert all the existing Export Processing Zones into Free Trading Zones (FTZs) from July 1, 1999. His plan is to free the FTZs from most of the bureaucratic and legal wrangles that the domestic industry is still caught in. Even the labour laws will be more flexible for exporters operating in FTZs. Asserts the commerce minister: "I am convinced that all restrictions on exports should go. So should unnecessary bureaucratic interference."

Clearly, Hegde is banking on ministerial colleagues to join him in his efforts to boost trade. Other than rationalisation of labour laws -- which has not been attempted in the past eight years -- he also proposes dereservation of items reserved for production in small-scale industries. Reason: 80 per cent of India's exports come from SSIs which have neither the technology nor the funds to compete globally. Says Arindam Banik, a professor at the Delhi-based International Management Institute: "Given the limited role of the Commerce Ministry in promoting trade, Hegde has to set out the reform agenda for other ministries as well."

One aspect where the Exim policy revision is devoid of boldness is the export growth target for 1999-2000. Having missed its 1998-99 target of 15 per cent growth by more than a mile (export growth will be less than 1 per cent), the policy has skipped setting a target for the next year. Also absent in the policy is a revival plan for India Brand Equity Fund which was launched in 1995 to promote branded exports. The 15-country 15-commodity matrix prepared in the past for focused attention on exports of specific products into specific markets has also been jettisoned.

Bhattacharyya sums it up: "On balance, the policy proposes to do far more than any other Exim policy in the recent years did." And if Hegde's proposals do not find favour with his Government, India may have to export its dream of becoming a global superpower.