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S. D. Naik

The Minister for Commerce and Industry, Mr Murasoli Maran, releasing the Export and Import Policy... Hardly inspiring.

THE economic slowdown and a sharp setback on the export front this year appears to have cast its shadow on the medium-term export strategy for 2002-07 unveiled by the Commerce Ministry last week. What strikes one at the outset is the far too modest target of 11.9 per cent annual growth target envisaged for exports over the next five years.

In fact, the Planning Commission officials were quick to point out that this growth rate will not be enough to push the GDP growth rate to 8 per cent per cent per annum proposed for the Tenth Plan period. They have indicated that an annual export growth rate of at least 14-15 per cent would be needed for achieving the GDP growth target set for the Plan period.

Foreign trade now plays a significant role in determining the overall growth rate of the economy. True, the global economic slowdown has adversely affected the export performance this year, but that need not affect the medium-term outlook for the world trade and the exports to such an extent.

Only last year (2000-01), exports had achieved a growth of 21 per cent to touch $44.56 billion. Clearly, the target of achieving exports of $80 billion by 2006-07 envisaged in the export strategy document is a far cry from the strategy drawn up in 1996, setting an ambitious export target of $75 billion by the turn of the century and $100 billion by 2001.

Evidently, the achievement of the average annual export growth of 20 per cent from 1993-94 to 1995-96 in dollar terms had given rise to the hope that the country would make rapid strides on the export front. This was considered a positive outcome of the economic reforms launched in July 1991.

Incidentally, the growth rate of the economy also surged during this period with the real GDP growth averaging 7.7 per cent per annum from 1994-95 to 1996-97, giving rise to the hope that spurred by reforms, the economy may have finally entered a higher growth trajectory. However, this hope was belied as the growth momentum as well as exports decelerated in subsequent years.

The exports staged a smart recovery in 2000-01, thanks to the growth in world trade by 12 per cent in 2000 (the fastest in more than a decade), a modest depreciation in the exchange value of the rupee, and a lower inflation rate for the manufactured products. However, the export growth slumped to less than one per cent for April-December, 2001-01 with the world trade environment turning distinctly unfavourable, thus, exposing once again the vulnerability of India's exports to changes in the external environment.

The latest strategy to raise the country's share in world exports from 0.7 per cent to 1 per cent by 2007 can hardly be termed bold. It may be recalled that the modified Exim Policy for 1997-2002, announced on March 31, 2001 was framed in the context of the goal of accelerating export growth to achieve at least 1 per cent share of global trade by 2004-05. This would have required achieving an export level of $75 billion by 2004-05 or roughly 18 per cent growth rate in exports till then. This year's setback on the export front seems to have persuaded policy-makers to dilute this target further.

In this context it would be pertinent to note the great strides made by China on the foreign trade front. At the start of its reform process in 1978, China had a share of 0.9 per cent in world exports, which expanded to 4 per cent by the end of 1990s with exports zooming to $259 billion. India can learn from the Chinese experience and aim at pushing its export growth rate to at least 15 per cent per annum, if not more.

What India needs urgently is to push ahead with the second-generation reforms, including the labour market reforms, even while removing the serious distortions that have crept into the first-generation reforms. The other high priority areas include improving the quality of infrastructure, attracting more FDI for inducting new technologies and improving the export competitiveness of industry and scrapping old, obsolete and sub-critical capacities, and pushing ahead with privatisation of public sector enterprises.

The Special Economic Zones (SEZs) now being built in several parts of the country to provide a big thrust to exports, would deliver on the promise only if infrastructure outside the zones is also improved by linking them with better roads and rail connections with ports. Unfortunately, the major highlights of the latest export strategy document fail to inspire confidence since much of it is culled from the series of export promotion packages announced by the Commerce Ministry over the past five-seven years without much success. For instance, the seven focus sectors identified in the new documents such as agriculture and allied products; engineering/electrical/electronic; textiles; gems and jewellery; chemicals and allied products; leather; footwear etc. are already the well-known thrust sectors.

True, the country has not been able to exploit their full potential because of infrastructural and other constraints. As the document points out, the cumulative imports of these items in the main world markets has been estimated at $1,600 billion, but the value of India's exports of these items is a paltry $19 billion accounting for 1.18 per cent of the world market. One would have also liked to see inclusion of some new items with promise and potential in order to diversify the country's narrow export basket. The document also makes specific recommendations for each of the thrust sectors but the same cannot be implemented without the co-operation of other ministries and the State governments.

It must be admitted, however, that to provide a big thrust to export growth, the Government will have to play an important role in providing infrastructural and institutional support to exporters. No country has left export competitiveness only to market forces. There is a need to encourage producing for exports instead of exporting the surplus of what is produced. The Government should monitor regularly the needs of exporters.

However, a number of crucial policy issues lie outside the purview of the Commerce Ministry and, hence, there are many missing links in the export strategy. These include infrastructure development and other measures to bring down the high transaction costs. It may be necessary to entrust the task of identifying and establishing these links to a Group of Ministers (GoM). Incidentally, an Export Promotion Board was also set up in 1997 as part of a medium-term package aimed at improving the export performance. One does not know what happened to the Board after the change in Government at the Centre but there is continuing absence of co-ordination among the concerned ministries. The Export Promotion Councils and Commodity Boards have also remained ineffective.

The Small Scale Industries sector, which accounts for 35 per cent of the exports is starved of funds for technology upgradation and working capital for export finance. The agricultural sector, which has emerged as one of the competitive export sectors with least import intensity in the post-reform period, has not been able to reap the benefits for want of adequate exportable surpluses. The public sector investment in the area has decelerated and several hi-tech segments such as horticulture, floriculture, acquaculture that hold great export potential have not received the support they deserve.

Over the years, India's exports have largely depended on the growth of the world economy and world trade and the depreciation of the domestic currency; the exports have hardly ever performed on the strength of the country's competitive edge or product quality.

Even the strategy now unveiled banks on a depreciating rupee to increase exports, rather than improving the competitive strength of Indian products in the world market.

In the successive World Competitiveness Year Books brought out by the International Institute for Management Development, as also the World Bank appraisals, India has remained among the bottom 10 countries, of the 50 or 60 countries surveyed. Even the decade of economic reforms has not made much difference to this.

The common weak strands in all the surveys are infrastructure inadequacies, deficient corporate and financial management, uncertain policy framework, low productivity and unreliable quality. It is evident that selective approaches, identification of thrust areas, search of new markets, and so on, are of limited significance in pushing up the export growth.

It is more important to invest more in infrastructure and improve productivity to make the Indian industry and products more competitive in the world market. This is all the more necessary with the removal of the quantitative restrictions on imports, and the import duties set to go down further over the next three years.

For improving export competitiveness, it is essential to make serious efforts to close the wide gap in quality between production for export market and that for the domestic market. Hopefully, the Commerce Ministry will elaborate on some of these issues in its forthcoming Exim Policy documents at the End of March this year.

Perhaps, by releasing the strategy document at this juncture, just a month before the presentation of the Budget, the Commerce Ministry seems to be looking for some supportive measures in the fiscal policies aimed at promoting exports.

In particular, restructuring the duty structure in certain sectors and specific fiscal incentives to States for export promotion efforts should receive the attention of the Finance Minister. Above all, there is a need to integrate the foreign trade policy with the overall macroeconomic policy, in preference to a sectoral approach pursued so far.

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