April 27, 1998

Bound by its commitment to the WTO, the Government does away with non-trade barriers on 336 items. Competition for the domestic industry intensifies.

By Shefali Rekhi

This summer, you can pick up from an Indian store some of the best Spanish olives, a few bottles of Mountain Dew mineral water, Italian truffles, Colombian guava or a few boxes of Swiss strawberries. For your dress, you can try the French tulles or the Belgian hand-made lace. If you want to measure out your life, and time, with anything costlier than a coffee spoon, you can buy off the shelf the best Rolex or any watch worth more than Rs 35,000. And if you're keen to give the rooms a new look, just order the classic Chippendale chairs or a rosewood bed with brass railings, made in England, of course.

Much of these joys of life could earlier be enjoyed in India only by visiting the neighbourhood grey market and paying prohibitive premia. However, Union Commerce Minister Ramakrishna Hegde, known for his liberal views, has, in his amendments to the Export and Import Policy for 1997-2000 last week, wrenched as many as 336 items out of the list of nearly 2,600 items that were either on the restricted list or could be imported only against export commitment, under the Special Import Licence (SIL) scheme. India is bound by its commitment to the World Trade Organisation (WTO) to progressively lower such non-tariff barriers (NTB) -- "tariffication" of trade being the mantra of globalisation. But Hegde's dramatic move to bring in a welter of items under the Open General Licence (OGL) might embarrass those who had written off a BJP-led Government as swadeshi fanatics. Many of the new entries under the OGL list are consumer items of mass demand, such as shrimps, soaps, dolls made of wood, metal or plastic, even footballs and hockey sticks.

Nearly two-thirds of these items were being imported earlier by those owning SIL, which is traded in the open market. The rest of the items have been picked up from the restricted list. Now importers will find no need to seek official permit to shop abroad and bring goods into the country. Their main consideration will be the import tariff and the local demand. The Commerce Ministry maintains that the new policy will have no significant bearing on total imports. Says Commerce Secretary P.P. Prabhu: "We have tried to meet our commitments to the WTO, without exposing the markets here."

The domestic industry, however, is not convinced. In many an instance, Indian companies are at a disadvantage, especially on issues relating to local duties, interest costs and infrastructure bottlenecks (see box). Local manufacturers of some of these products, now moved to OGL, think that the move will mean more competition because the tariff walls are no longer restraining. For items like shrimps, onions, mushrooms and cucumbers, it is a mere 15 per cent. It is 25 per cent in the case of specialised paper products and up to 45 per cent for toilet soaps, shaving creams, pencils and crayons. Taken together, the average duty is around 30 per cent, which is not a significant barrier. While the domestic products may still dominate the lower end of the market, the easing of imports will no doubt squeeze margins.

The steady lowering of tariffs spelt a surge in imports in the past. The growth rate in imports between April 1997 and January 1998 was 6.4 per cent, much more than the growth of 5.9 per cent in the corresponding period the previous year. Imports grew though the economy was sluggish and export growth had decelerated. This time, competition from imports will become even more fierce because the SIL itself commanded a 5 per cent-7 per cent premium. With many items freed from the SIL binding, their import cost will fall to that extent, threatening to edge out more domestic rivals.

The new policy is beginning to kick up a political storm. Kerala's CPI(M) Chief Minister E.K. Nayanar has appealed to all political parties to take a united stand against the policy, which he thinks will have a "deleterious effect, particularly on Kerala". Nayanar's worry stems from the possible impact on the prices of processed marine products, a sector in which the state is the market leader. The chambers of commerce too are collecting data to demand a "correction" in the import duty rates in the forthcoming budget. Says CII Deputy Director-General Manashi Roy: "There was no need for India to lower the trade barriers at a pace faster than the one committed to the WTO."

Prior to March last year, India had 2,600 items on the restricted list. India is committed to do away with Quantitative Restrictions (QRs) in three phases by March 2003, barring items relating to safety, environment and defence needs. In the first phase, which ends in March 2000, India must reduce QRs on 1,000-odd items. So the present pace of relaxation is not unduly hurried. But the domestic industry is worried because the more visible consumer industries have received the first hit. Its case, however, is somewhat weakened by the fact that Hegde had little choice in the matter, the restricted list being dominated by consumer items.

A more important reason for the domestic producers' worry lies in the fact that India is committed to not only reducing the restricted list but to lower its tariff rates as well. If the Government honours the commitments made to the WTO earlier, the range of import duties must come down further. Says V.R. Panchmukhi, director of the Delhi-based Research and Information Systems, which does work on WTO-related issues: "Simply putting items on OGL doesn't make it a threat, but we will be under pressure to reduce rates further. The Government must be extra cautious to ensure a level playing-field."

It is precisely the absence of a level playing-field that annoys the domestic industry. Adi B. Godrej, managing director, Godrej Soaps Ltd, says Indian companies will be at a great disadvantage if the discrimination continues. These relate to high excise rates, steep cost of capital and poor infrastructure. While there's a question mark on the rectification of these aberrations, the domestic players now also need to brace up to face the next round of OGL expansion, which may include electronic goods, natural rubber, even wine. While trade goes global, the problems of industry will remain local.

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