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Useful despite limitations

The annual supplement to the five-year Foreign Trade Policy (2004-09), unveiled on Friday, like its predecessor, was not expected to break new ground in policy initiatives. However, as Commerce Minister Kamal Nath points out, there is still a need to fine-tune the national policy at annual intervals. The foreign trade policy acquired a new name under the United Progressive Alliance Government with the FTP coming in place of the traditional Exim policy. The change was meant to give a distinct focus to foreign trade by integrating its goals with the broader objectives of economic growth and employment generation. The FTP's goals include a doubling of India's share of global merchandise trade by 2009 and giving a thrust to employment generation. Annual policy supplements that are meant to facilitate the realisation of these broader objectives also serve as a forum for reviewing the policy. This year the progress on the trade front has been impressive. Merchandise exports, growing at an annual rate of 25 per cent and above over the past two years have crossed $101 billion. Imports have been growing at an even faster rate to touch $140 billion. The petroleum import bill estimated at $43 billion is likely to remain inelastic in the foreseeable future. In the overall balance of payments, it is only the earnings under "invisibles," comprising services exports and workers' remittances, that have helped bridge the current account deficit.

It is noteworthy that the growth in merchandise exports has been broad-based and there has also been a rise in the country's market shares in important destination countries. To overcome the low penetration in some potentially significant markets such as Latin America and Africa, this year's supplement to the policy has proposed to give special incentives for exports to these regions. Similar incentives are to be extended to the export of those industrial products that generate large employment. Despite its overwhelming thrust on merchandise trade, the FTP does not ignore the vital services sector exports. These have emerged as large employment avenues for the educated youth in the country. As expected, the FTP supplement lays stress on certain specific sectors; gem and jewellery, automobile components, and marine sectors are among those that will receive special policy attention. It is not clear whether the new Duty Free Import Authorisation Scheme, incorporating salient features of some existing export promotion schemes, will be a substitute for some schemes, notably the DEPB, that are not compatible with the WTO rules. The FTP and its annual pronouncements serve a purpose despite their obvious limitations. Key areas such as infrastructure development are outside the trade policy. In fiscal matters, a greater co-ordination with the Finance Ministry is needed. In more general terms, multilateral trade arrangements embodied in the WTO rules have considerably diluted the role of fiscal incentives that used to be an important part of the trade policy.

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