Millennium Post

When innovation is the key

When innovation is the key
As the Modi Government is set to unveil the five-year foreign trade policy (2014-19) soon, all eyes are fixated on what would be the broad contours and  contents of it, particularly in the context of India’s dominant part in  the  defeat of the trade facilitation policy (TFP) piloted by the World Trade Organization (WTO). India played a crucial role in the Bali Ministerial in agreeing to the launch of the TFP as its concerns over food security issues had been taken on board by giving it the reprieve till a permanent solution to the latter is hammered out in four years time from 2013. But the BJP-led NDA government that came to power in May 2014 did not find any merit in the short-term solution but instead sought a swift settling of the food security issue before it consented to ratify the TFP.  Hence the WTO could not open the trade facilitation policy for ratification on the deadline of July 31, 2014 owing to New Delhi’s dudgeon on immediate permanent solution to food security since any decision in the WTO is arrived at by consensus.

Lest the damage wrought to the multilateral trading system should weaken India’s image as an open economy keen on integrating itself into the international trading system, India’s savvy Finance Minister Mr. Arun Jaitley took the occasion of the two-day annual meet of the Chief Commissioners and Directors General of Customs, Central excise and Service Tax in the capital in the second week of August to state that India  sets store by trade facilitation as it axiomatically leads to substantial reduction in transaction cost for the businesses.  He also made a pitch for trade facilitation in taxation, highlighting how a large number of tax irritants had been fostered in tax administration, leading to avoidable tax litigation and the locking of time, cost and energy of the active players of the economy!

Not lagging behind Mr. Jaitley in her zeal for trade facilitation, the Minister of State for Commerce (Independent Charge) Ms. Nirmala Sitharaman too in her valedictory address at the same conclave said that the government is committed to trade facilitation in which the role of the Customs department would be central. With so much concerns being voiced by BJP’s important ministers, the reality of the role India played in not enabling the trade facilitation policy at Geneva is far removed. It would be interesting to see how the FTP of India is going the whole hog on trade facilitation which alone is a surefire strategy to hack the huge transaction cost the trade and industry is saddled with that takes away its productive energy in focusing on the core area of market and product developments to carve a niche in the overseas markets.

Be that as it may, the country’s exports had done reasonably well in the first four months of the current fiscal showing a growth of 8.62 per cent in April-July 2014 and fetching $107 billion in receipts. Since India unveiled its trade and industrial policy liberalization in the early 1990s, the performance of the export industry was relatively better compared to the industrial growth which remained mostly in the negative territory particularly for the manufacturing segment. Exports have been continuously growing except for the years 1998-99, 2001-02, 2009-10 and 2012-13 in the last two decades. It is altogether another despairing story that the export target which was $300 billion in 2011-12, $350 billion in 2012-13 and $325 billion in 2013-14 exceeded only in 2011-12 when it touched $306 billion and it amounted to $300.4 billion in 2012-13 and $312.6 billion in the fiscal 2013-14.

Fixing target and missing it has become so commonplace  that besides uncertain international trading milieu, domestic disabilities  ranging from high cost of credit (export finance), infrastructural obstacles particularly in the logistics as also erratic power supply situation across the country coupled with inadequately skilled labour-force were responsible for stagnancy in exports. As such, FTP should now focus on how the trade and industry can be helped by addressing and redressing structural issues instead of spreading the dubious benefits through subventions, tokenism such as sector-specific and industry-specific incremental schemes and programmes that do not really benefit industries that carry out big export orders unobtrusively.

A general grouse is that most of the export promotion schemes and programmes currently operated by the Department of Commerce are captured by a clutch of powerful coteries of small exporters who develop a vested interest in running these councils by their domineering role in connivance with pliable authorities. As a corollary, so many schemes operated by the Commerce Ministry for instance have been roundly rapped by the Comptroller and Auditor General of India (CAG).

A report on the Department of Revenue, tabled in Parliament, in August by the CAG estimates that the revenue foregone under export promotion schemes accounts for 44 per cent of the customs receipts during the fiscal year 2013, entailing a humongous Rs 72,274.86 crore. The various schemes of export promotion which contributed to duty foregone include advance licence, SEZs, Export-Oriented Units/Export Hardware Technology Park/Software Technology Park, Export Promotion of Capital Goods (EPCG), duty drawback, duty entitlement passbook scheme, target plus schemes, Vishesh Krishi and Gram Udyog Yojana, Served from India, Focus Market Scheme, Focus Product Scheme and Duty Free Import Authorization scheme and Duty Free Replenishment Certificate  and Duty Free Entitlement Credit Certificate scheme to status holder. Interestingly, the first five commodities contributing to a lion’s share of revenue foregone include, among others, precious stones, jeweler, mineral fuels and mineral oils, animal or vegetable fats, machinery and electrical machinery.

Trade policy analysts contend that business-as-usual approach to FTP would no longer hold if India is to emerge competitive in the global trading arena without a root-and-branch reform of the government-led initiatives from the Centre. That is why the Prime Minister Mr. Narendra Modi in his address from the Red Fort plumped for constituting State EPCs, leveraging individual State’s factor endowments and locational advantages.

It is widely expected that after what Mr. Modi has flagged off, the forthcoming FTP has a big opportunity to think out of box to anchor as much or much more on the services exports than on merchandise exports, besides pruning a welter of wasteful merchandise export promotion measures.  India’s service exports hold a higher share of 3.3 per cent in 2013 at $ 153 billion in world services export as per WTO data, while it does not even constitute two per cent of the global merchandise trade.  This alone should compel the authorities to focus a bit more on services exports and leaving merchandise exports to develop domestic manufacturing muscle and heft in the meanwhile! Let domestic manufacturing be facilitated to grow to its full potentials so that ‘Make in India’ tag as keenly sought by Mr. Modi in the global markets would soon be an enchanting reality. IPA

 

G Srinivasan

G Srinivasan

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