FINANCIAL SCENE
Limitations of trade policies
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From Exim to FTP there has been very little change in the substance of trade policies.
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THE FIRST annual supplement to the five-year Foreign Trade Policy (FTP) was unveiled by the Commerce Minister, Kamal Nath on Friday. There is not much that a supplementary statement can do to facilitate trade. In fact, that role of the FTP itself as also of the Commerce Ministry has shrunk. Many commentators have pointed out that a foreign trade policy by whatever name called — the FTP replaced the EXIM policies — had become redundant. Both imports and exports have been largely decontrolled. Customs duty has been reduced drastically on a number of items.
And foreign exchange has long since ceased to be a scarce resource requiring special efforts at both conserving the stock and increasing it.
There are other fundamental reasons for the limited role of trade policies. The thrust of these policies has traditionally been on merchandise trade. Exports have been robust over the past five years averaging more than 14.5 per cent growth anually. In 2003-04 these were of the order of $63 billion and imports $79.6 billion. Last year (2004-05) export performance was particularly noteworthy with final estimates expected to be above $80 billion. Imports soared even higher to $105 billion, on the back of a steep increase in oil imports. (Estimated oil import bill is $29 billion).
Slowdown likely
A few points are relevant here. India's external trade has been buoyant because global economic factors have been strong. The year 2004 was a particularly good year for the global economy despite the persistent oil shocks.
Trends during the first quarter of this year show that global recovery might have peaked ;overall economic growth this year might be lower. How all these and the sticky oil prices will impact India's external trade is difficult to fathom at this stage but it is reasonable to assume that the slowing down of the world economy will have a deleterious impact on Indian trade. There is very little that the FTP can do here.
The fact that India's trade with the outside world has accelerated even as it is being rapidly decontrolled is a pointer that the government's facilitation role works best when private initiatives are supported from behind through policy initiatives. This of course is what the FTP should be particularly good at.
However, if foreign trade promotion policy in its widest connotation involves a variety of development efforts, there is no point in countering the argument that the Commerce Ministry alone cannot meet those. Obviously other ministries have to be involved. Hence, while trade facilitation, simplification and reduction in transaction costs and infrastructure improvement have all been desirable objectives there is very little that the Commerce Minister can do by himself. The agonising delay in formulating a new WTO compliant scheme to replace the DEPB scheme is a case in point. In fact much of the procedural changes announced have financial implications that go well beyond the Commerce Ministry's jurisdiction.
Data show that the category of `Invisibles' comprising software receipts and inward remittances from Indians working abroad has become extremely significant.
In 2004-05 and the previous year, they were at $51.9 billion and $26.6 billion respectively. Promotion efforts here, especially concerning remittances from Indians working abroad, have been few and cost-wise are insignificant compared to the large sums involved in the traditional export promotion efforts. For last year, software exports alone are expected to bridge the trade gap of $25 billion.
Last year, while presenting the FTP, Mr. Kamal Nath had justified the new nomenclature by saying foreign trade is much more than imports and exports and that there is a need to have an integrated approach to the development needs of India's foreign trade. That indeed is so. But did the change in nomenclature mean something more than that?
Not only now but all EXIM policies in the past have laid down certain ground rules and provided modifications for carrying forward imports and exports.
Besides there have been special initiatives — duty remission schemes and promotional measures — to help exporters compete in the market place. All these continue to be reflected in the new FTP as well.
C. R. L. Narasimhan
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