Simplifying Doing Trade
In light of global trade protectionism, it is essential to account for an integrated view of logistics development.
Last month, President Donald Trump decided to defer a decision imposing tariff barriers on some European imports. A major trade war was averted, at least temporarily. This happened after hectic negotiations. Such was the gravity that both the German Chancellor and the French President travelled to the United States in person. While tariff threats are increasingly being used in the global markets, back home, the government is working hard on an alternate strategy to blunt the undesirable impact of such protectionist moves. The aim is to simplify doing business and make India one of the fastest and most cost-effective economies to trade with. This is the key to enhance our competitiveness and capture a higher share in global trade markets. Here are some specific details.
The key challenges first. Independent research suggests that it still takes a significant time for traded goods (exports and imports) to comply with border activities. What do we mean by border activities? They comprise activities such as documentation, obtaining clearances from customs or other agencies such as Animal Quarantine, FSSAI, Drug Quarantine etc., payment of duties and so on. World Bank's Doing Business (DB 2018) study points out that it takes more than five days for exports and more than 10 days for imports to undertake border compliance. In contrast, for most developed countries, this time is usually in hours, less than a day. Higher time translates to higher cost as well. It is, therefore, not a surprise that users (importers and exporters) find doing trade in India multiple times more difficult and costly than the developed world.
The reasons for such contrasting disparities are not surprising. Documentation requirements: cumbersome. Procedures: multiple and sometimes overlapping. Stakeholders: too many. Dun & Bradstreet (D&B), a reputed data analytics company, recently did another independent study on the state of Port Logistics in the country. Their study made some important observations. Besides Customs, the total number of other government agencies (known as Partner Government Agencies – PGAs) that could be involved for final clearances could be as many as 19. Infact, the number of PGAs can go as high as 45. The number of pages in documents required for export totaled more than 100 pages. Also, the number of documents required to do business varied from port to port. To obtain a gate pass at the CFS, one can expect compiling anywhere between nine to 15 documents across ports. To obtain customs clearance, anywhere between three to 20 documents and between five to 14 to obtain a Delivery Order (DO). All this despite the fact that the number of mandatory documents for imports and exports has been reduced to three each.
If Rome wasn't built in one day, so weren't the many procedures, agencies and documents that have complicated the state of affairs. Decades old procedures and systems have become a roadblock in capturing a larger share in the global markets. Thankfully, processes are now changing and several things are going right. A series of policy actions are underway. On the infrastructure front, the Sagarmala and the Bharatmala programs promise to transform the physical connectivity networks. Once implemented, these initiatives will create a set of next-gen highways and expressways (also, new economic corridors) connecting major freight routes, multi-modal logistics parks, modern ports etc. This would drastically enhance the speed and efficiency of freight transport in the hinterland. The Indian Railways, on the other hand, is in its last lap of completing the Eastern and the Western Dedicated Freight Corridor (DFC) project. Once commissioned, we can all witness heavy haul freight trains running at 2X-3X the existing speeds.
These large cap-ex intensive programs have also been complimented by a range of softer policy and procedural reforms. Customs has implemented and operationalised a Single Window Interface for Facilitating Trade (called 'SWIFT') to facilitate clearances electronically. Direct Port Delivery (DPD) and Direct Port Entry (DPE) are being pursued to cut down cargo dwell time at key ports. The logistics sector has been included in the harmonised master list of infrastructure sub-sectors to attract more investment funds and at easier terms. A single window contact point for exporters and importers is being planned. A dedicated 'Logistics Cell' has also been created in the Department of Commerce for inter-departmental coordination and troubleshooting.
These changes are bearing results. In the World Bank's Logistics Performance Index (LPI), India jumped 19 spots recently, from a rank of 54 in 2014 to 35 in 2016. This is an index that captures perceptions of professionals engaged in the logistics sector. Interestingly, India's rank movement over the years is a sinusoidal one. In 2007, India was ranked 39, slipped to 46 in 2012. It further fell to 54 in 2014 before moving up in 2016. So, what worked? Though there has been tangible improvement in procedural areas, the real improvement was on the 'Infrastructure' sub-category, which translates to "quality of trade and transport related infrastructure (eg. Ports, railroads, roads, information technology)". That said, the writing on the wall is clear. We can't be complacent as challenges persist. But, if we do not change the way we have been doing things, the policy initiatives may not bring in the results they were intended to. Hence, while the ongoing measures should continue, what we need is to re-orient the manner in which we have looked at the logistics space.
Actions that facilitate the convergence of various policy initiatives and consolidate stakeholders into a single platform could be the real game changer. Such actions could eliminate the multiplicity of procedural and documentation requirements and streamline the flow of information across stakeholders. Three ideas are suggested. First, develop an integrated logistics policy. This policy must define the overall development vision and outcomes for this sector; suggest changes to regulations, create a governance and institutional structure for monitoring outcomes, propose new interventions, address grievances etc. Second, set up an integrated national digital platform that provides end-to-end service; from regulatory information to cargo tracing to government-business and government-government interactions. This Electronic Data Interchange (EDI) system will cut through complexities and offer a round-the-clock solution to users. Singapore's Tradenet platform could possibly offer some clues about its structure and functionalities. Third, create a Logistics Performance Evaluation Tool that tracks real time delivery and health of this space. Such a tracker would not only monitor the key outputs (vis-à-vis targets) but will also throw light on the aspects that need the priority attention of policymakers. The push for change, thus, lies in integration and simplification.
What charms most of us are big-bang complicated reforms. Certainly, big-bang reforms have their own place. But equally important are those measures that fill in the gaps and join the dots. The ideas above fill a much-needed gap by emphasising the need to consolidate and streamline the existing re-engineering initiatives. This is crucial to create a simple, fast and cost-efficient trade ecosystem, something essential to sharpening our trade competitiveness. The World Bank launched its Doing Business (DB) study in 2002 and published its first report in 2003. It has several shortcomings and limitations that have been fiercely debated since sometime now. Still, in any case, DB has helped bring the urgency and importance of "simplifying doing business" at the center of the national policy debate.
(Dr. Bibek Debroy is Chairman EAC-PM; Kishore Desai is OSD, EAC-PM; Diwakar Jhurani is Young Professional, EAC-PM)