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WITH EXPORTS THIS year growing at over 16 per cent against a target of 12 per cent, the new Commerce Minister, Mr Arun Jaitley, could not have asked for a better stage to deliver his maiden Exim Policy. The performance has Mr Jaitley saying that the target of touching one per cent of global trade by 2007 might well be surpassed but for the unsettled conditions in West Asia. Is his confidence justified? For several years, the Government and the Reserve Bank of India were conditioned by exporters to believe that only a depreciating rupee can sustain exports. Periodic interventions by the RBI to buy up dollars kept nudging the rupee down an average of 4.2 per cent a year between 1993 and 2002. But in the past two years, the alleged link has been disproved. In 2001-02, the rupee depreciated by 4.5 per cent but exports fell 1.6 per cent; in 2002-03, the rupee appreciated by 2.5 per cent but did not stop exports from rising by over 16 per cent. Mr Jaitley has done well not to seek a recalibration of the rupee to boost exports.

What he has sought to use with great flourish to enthuse exporters is the carrot of duty-free imports. An advantage of such a device to reduce the cost for exporters is that this is not incompatible with WTO regulations, which frown on other direct subsidies. So we have export houses with star trading status and no worthwhile incentives from the Government being given duty-free import of up to 10 per cent of their average annual exports. Mr Jaitley did not stop with addressing them, but has taken his pitch to new sets of exporters. Services, a segment his Ministry has traditionally not considered part of its domain save for tourism, has come in for attention with similar duty-free imports being offered to exporters of select services. So have farm exports that now have the benefit of higher DEPB rates. Mr Jaitley claims this will help the farmer use better quality inputs, but as the drawback is paid to the trader, the farmer may still go unserved.

While the policy has reaffirmed a long-running commitment to reducing transaction costs for exporters, the moves on the ground are still far too slow. The maze of regulations that exporters have to comply with may be changing but it is questionable if they are becoming less complex, or the shift from tiring paper-work to electronic compliance happening quickly enough to make any dramatic impact. Cheap credit for exporters is less of an issue now with interest rates at their lowest levels in decades but other costs, such as that of energy, that hurt exporters of every hue must be addressed if the competitive edge is to be maintained. Electricity tariffs for industry have risen 150 per cent in the past decade, so have the prices of petroleum fuels, while general inflation has been only 68 per cent. In the United States, electricity prices have barely changed during this period while the price of fuel oil has risen no more than 30 per cent. The inefficiency in the largely government-controlled domestic energy economy stands exposed. Compensating exporters for that with a Customs duty exemption is the easy option for the Commerce Ministry. But it is one that serves to paper over the basic inefficiencies in the economy. Only if the Government squarely tackles this issue can Mr Jaitley remain confident of striking the target.

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