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With all restrictions on imports ending in a year, Indians can now buy anything anywhere. But a deluge of foreign goods is unlikely.

By Rohit Saran

Swiss chocolates. Venezuelan coffee. Dutch cheese. Australian juice. French caviar ... This is not the serving list of a five-star hotel party. These are random items from the shopping list of Ravina Sharma, a housewife from Delhi's upmarket Hauz Khas. In recent years the foreign-crazy Sharma's dining table has seen a rush of global products, all available over-the-counter at their local grocery. Case of blatant smuggling? No. The signs of a truly global Indian economy.

In the past 10 years India has been dismantling licensing of imports to move towards a system where products can be imported freely in any amount on payment of customs duty. On March 31 this year, Commerce Minister Murasoli Maran took the country to the last stop before that destination by removing import licensing of 714 products. Only 715 products now remain on the restricted list, which too will be freed on April 1, 2001. India will then be a completely open economy for the first time since 1947. Tunisia, Bangladesh, Sri Lanka and Turkey are the only other countries that still have quantitative restrictions (QRs) on imports.

Says Bibek Debroy, Delhi-based trade expert: "In terms of significance, removal of import licensing could be rated right next to the end of licensing on industry, which was done in 1991." One of the reasons why it took India more than 10 years to progress from industrial delicensing to import delicensing was the fear that families like the Sharmas would rush to buy imported products once they were freely available. That fear now seems exaggerated.

The best proof of that is the absence of an import deluge so far. Of the 10,500-odd products of imports, all but 715 have already been freed from licensing. In 1999, import restrictions were lifted from some 1,400 items. Yet there hasn't been a surge in imports. "There is a fear that we have opened the door to things ranging from American tracksuits to blue cheese from Switzerland," says Maran. "Even assuming the charge to be true, how many Indians can afford such products? Maybe 0.001 per cent."

Clearly, the alarmists miss one vital aspect of import liberalisation: removing licensing from imports does not mean taking away all restrictions on imports. Importers, and therefore the consumers, still have to pay customs duty on all imports. Right now, all products freed from import licensing are being charged the peak basic customs duty of 35 per cent. Add to that 10 per cent surcharge, 4 per cent special additional duty, a countervailing duty (duty in lieu of excise) and the total payable customs duty ranges from a minimum of 44 per cent to 100 per cent.

This level of duty is supposed to neutralise the price advantage the imported products may have over domestic counterparts. Then there are costs of freight and insurance which could be prohibitive if the product is bulky, like an automobile or a large consumer appliance. Such products would also not have the service guarantee of the kind that products manufactured in the country offer.

But the biggest buffer against an import surge is the presence of multinational brands in India. Before 1991 the only way to own a foreign brand was to import it. That's no more the case. Be it cosmetics, food, beverages, appliances, clothing or automobiles, every major international brand is sold in India. That means even the foreign companies would like Indians to buy their products in India rather than import them from abroad. Or else, their investments in the country would suffer. Remarks N.L. Lakhanpal, director-general of foreign trade: "It is neither in the interest of consumers nor the companies to import large-scale finished products."

A recent Directorate-General of Foreign Trade study on import patterns shows that the volume of imports depend more on a product's availability in the domestic market than on whether or not the product's import is free or restricted. So cellular phones are imported in a much larger quantity than normal phone sets they are not manufactured in India. For similar reasons more laptop computers will be imported than the desktop.

In fact, open imports will force both foreign and Indian companies to bridge the quality gap between products sold in India and abroad, wherever such a gap still exists. That would eliminate imports that happen in search of better quality. Predicts Razak Allana, a Mumbai-based processed food trader: "Import liberalisation will ensure that foreign companies do not sell substandard products in India." Automobiles is one sector in India where convergence in international and domestic quality standards will take place once QRs are removed from vehicle imports next year. In most other consumer products such convergence already exists.

Quality convergence is invariably accompanied by price convergence. Already, the past two years of low inflation were partly due to the freer import of food products. Edible oils, wheat, onion and betel nut were imported in large quantities to meet domestic shortfall in production. These products have high weightage in the wholesale price index, which means a sudden shortage could flare up the overall rate of inflation. Claims Lakhanpal: "Some credit for the prevailing low inflation is due to our import management. With imports now open, Indian prices are aligning with global prices."

Free import will not be an unmixed blessing though if some corresponding actions are not taken -- soon. One area of immediate attention is the product reservation for the small-scale industry (SSI). Some 800 products are reserved for exclusive production by the SSI. But the import of many of these products has been opened up. That means the SSI will now compete directly with large foreign companies. There is no guessing who will win.

The Indian toy industry (an SSI preserve) is on the verge of extinction due to the onslaught from Chinese imports. The choice is clear: end product reservation to allow for large-scale investments which could compete with imports. Warns Arindam Banik, professor at the Delhi-based International Management Institute: "SSI reservation has to end within two-three years, if not earlier."

Anti-dumping is another area where India needs to sharpen its policies. Though a general import surge is unlikely, foreign firms could dump specific products in India at below-cost price. That's a universally accepted unfair trade practice that needs to be dealt with strong anti-dumping actions like confiscation of goods.

India's record on such safeguard actions has been patchy. The anti-dumping directorate in Delhi has a staff of just seven. Investigation into dumping complaints takes up to two years, by which time dumping disappears on its own. Says Debroy: "Our anti-dumping mechanism is nowhere as effective as the one in the US." A free-for-all system works well only if the policing is effective.

-with Robin Abreu

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