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A paradigm shift in trade policy?

The new focus areas are job creation through exports and special products and end-markets

— Photo: Kamal Narang

TWIN THRUST: Union Minister for Commerce and Industry, Kamal Nath, releasing the Foreign Trade Policy in New Delhi recently.

THE INDUSTRY and Commerce Minister, Kamal Nath, has unveiled the Annual Supplement to the Foreign Trade Policy (2004-09), with a new perspective, different from earlier policies. This year's policy statement needs to be understood as an extension of the thrust given by the Finance Minister in his latest budget.

The new angle of the trade policy is reflected in two measures: an overall employment focus that is projected as the human face of the policy and a specific export focus on special products and end-markets in the form of two WTO-compatible schemes, namely, the Focus Products Scheme (FPS) and the Focus Markets Scheme (FMS).

Commenting on the policy, Mr. Kamal Nath's ministerial colleague Jayaram Ramesh said it implied a major paradigm shift in trade policy.

The new shift, according to him, is from earning dollars to creating more jobs and providing more incentives to creating infrastructure and concessions to achieve competitiveness.

Does this really mean a major paradigm shift? If so, will it really mean a major boost to employment generation? Of course, the phenomenon of `jobless growth' since 1996 is something that has been worrying the planners and policy makers. The growth rate has crossed 8 per cent and export receipts in 2005-06 have crossed $101 billion. These should obviously provide an ideal foundation to translate growth into employment opportunities. The Exim Policy statement aims at a target of two million new jobs through export led initiatives in the current fiscal.

Employment potential

A discussion on the opportunities and constraints needs to start from the logic and content of the policy statement itself. Employment generation cannot be an end in itself. It is the outcome of a variety of economic and social factors, which public policy may obviously be able to influence. Is the Exim Policy adequately tuned to perform this role in a meaningful manner?

An answer to this question has to be sought primarily in terms of the focal products to be identified by the policy. A review of past exim policy statements shows that the thrust has been mostly on gem and jewellery, handicrafts and handlooms. The thrust of this year's policy is going to be on a package meant to enhance export competitiveness of these items, either through reduction of costs or lowering of other trade barriers.

Clarifying the policy thrust, Mr. Jayaram Ramesh admitted that he did not have any illusions about the fiscal sops.

Changing thrusts

The task is, however, somewhat different. One has to examine the net effect of policy announcements in terms of their trickle-down effect at the grassroots level. It is this trickle-down that determines the magnitude of employment generation and its sustainability.

A brief recap of the experience of export promotion policy in the past decade should be instructive. During the late 1990s, poverty reduction was one of the thrusts of export promotion. Inspired by the Export-led Poverty Reduction Project (EPRP) of the International Trade Centre (ITC), the concept of `export-led poverty reduction' was introduced and operationalised in India, and was experimented by the Spices Board. The Indian project has been documented by ITC as a "success story.'' But this "success story,'' if at all it is working, has not been properly replicated. In Brazil, the EPRP was implemented successfully with the focus on specific regions and with much greater replication within the country.

Two similar programmes, one focussed on women for export production and the other on export production villages (both from ITC), however, did not take off. The mega project of the Ministry, ASIDE (Assistance to State Infrastructure Development for Exports), has also not yielded the intended results in many States. In many cases, it ended up as an additional Central support to construction of roads and bridges!

Neglected SME sector

The lesson is simple. The sectors and sub-sectors identified by the Exim Policy are largely constituted by small and medium enterprises (SMEs). In fact, one of the tall claims of the SME sector related to its export contribution, estimated at around 40 per cent of total exports. Seen from this angle, the basic task under the "paradigm shift" should be to identify the candidate industries cited by the Exim Policy from an operational angle. Public policy is one thing. Its operability is another thing. Unless synergies are created between the two, translation of benefits of economic policy into human well-being, in terms of employment, quality of life or other related variables, becomes extremely difficult.

Proper recognition and accommodation of SMEs in the policy platform can help translate policy into strategies in a relatively easy manner. In a federal system that India is, Central policies have to be implemented by State governments, and in the new move towards panchayati raj, many governments have transferred some of these tasks to the local governments as well. The Commerce Minister has rightly cited the challenge from China. But one needs to also compare the policy environment in the two countries that makes a real difference in translating market signals into business activities.

The thrust of the new policy on some normally neglected areas such as GMO material and services exports is a step in the right direction. But India needs to restructure its enterprise policy on a par with happenings elsewhere in the world.

P. M. MATHEW

Director, Institute of Small Enterprises and Development, Kochi. He can be reached at director@isedonline.org

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