The Hindu Business Line : The economy: Making ideas work

A sphere where the Board of Trade may run up against problems is its call to the authorities to address the infrastructure bottlenecks in the economy. The crux of the issue is finding the resources to overcome the infrastructure problems on a scale which would make a material difference to the economy's growth rate.

THE first meeting of the revamped Board of Trade has produced ideas which, if implemented, could produce the rabbit out of the hat for the Indian economy. But, of course, the crucial question is: Will the ideas be implemented in the way envisioned at the meeting?

What were the ideas that were generated at the meeting? The most important specific proposition framed was a $500 billion target for two-way trade within five years (against the present performance of around $185 billion). The board is expected to draw up a firm strategy which will enable the economy to attain the target. According to the chairman of the board — an advisory of the Union Commerce Ministry — the meeting also called for changing the prevalent mindset among both the Government and the business fraternity, ensuring faster growth in the manufacturing sector, and strengthening the "made in India" brand in the world market. Further, the board suggested that the problems of infrastructure bottlenecks and rigid labour laws be addressed by the authorities.

How did the Government respond? The Prime Minister, who attended the meeting, endorsed the export target and (as reported) directed Union Ministries to remove hurdles in the way of increasing exports, and tackle infrastructure and labour law problems. The Union Commerce Minister, Mr Kamal Nath, focussed on, among other things, the need to reduce transaction costs, suggesting that the BoT could even hold a special session to discuss ways in which this could be done. He called for measures which would transform the special economic zones into hubs of productive activity and also drew attention to point that India could become an important investment destination for potential investors.

The immediate outcome of the meeting was that the board set up five working groups to report on specific subjects, namely, evaluation of the duty entitlement pass book (DEPB) and target-plus schemes, trade facilitation, bottlenecks in manufacturing, identification of thrust export areas, and special economic zones and export-oriented units. These groups are to report back to the board before its next meeting in September. The clear suggestion here is that the newly constituted BoT means business and has begun work in right earnest, as usually happens with private-sector corporate bodies.

This is all very good and the country would dearly expect to see results flow from such an effort because, at the end of it all, it is the average citizen who will stand to benefit the most via an improved standard of living. But the disturbing thought is that all this effort may not have a proportionate impact on actual policy and implementation not only because of the fact that there are numerous hurdles that will have to be crossed by the Government before policy is re-oriented in the right direction but also because of the huge dimensions involved for intentions to be translated into meaningful action.

To take a specific example, one of the obstacles to rapid industrial growth (and, by extension, impressive export performance) is the corpus of rigid labour laws that occupies an important position in the sphere of industrial relations today.

The BoT has made clear its stand on this point, arguing in no uncertain terms that rigid labour laws have no place in today's economic set-up specially if the general effort is to engineer a big economic leap forward. The clear inference here is that labour laws should be made more flexible enabling entrepreneurs (investors) to restructure their ventures according to the requirements on the ground. This means that there should be in place an `acceptable' exit policy which would enable an investor to revise his business strategy and tactics as and when he deems such action fit and which would also, at the same time, protect the basic interest of the workers affected by such a move, namely, their means to a livelihood.

The question is: Will the BoT's and the Government's initiative in this direction meet with success this time around when, in the past, all such efforts have invariably met with failure? In fact, given the composition of the United Progressive Alliance, which runs the Manmohan Singh Government, it will perhaps not be unrealistic to suggest that any move to draw up an exit policy (in particular one which will be welcomed by entrepreneurs) will find the going now even tougher than in the past, specially during Mr Vajpayee's regime.

The ripple-effect of this inability to draw up more flexible labour laws on production — both for the domestic market and for exports — could be severe in view of the legitimate fear of investors that their investments may get stuck in a rut if they find themselves in a situation where they are unable to reduce their labour force or transfer manpower from one division of their business to another in the interests of more efficient functioning.

Another sphere where the BoT may run up against problems is its call to the authorities to address the infrastructure bottlenecks facing the economy, obstacles which could mean all the difference between a vibrant Indian economy answering to the call of an Asian Tiger and one which is doomed to continued stagnation. Clearly, the important thing is not recognising that such a problem exists and that it is posing a serious threat to attaining the economy's true potential. Indeed, this has been talked about for years at various levels both within the country and outside it. The much more crucial point is to find ways to tackle the problem effectively, which would make a world of difference to the economy's performance. The crux of the issue is finding the resources to overcome the infrastructure problems on a scale which would make a material difference to the economy's growth rate. The subject is not new, but the point is that till now no effective progress has been made towards finding a solution that works, which is, of course, not the same thing as saying that a solution is not possible.

It is in this perspective that the Prime Minister's directive to the Ministries concerned to remove infrastructure bottlenecks should be seen, one being tempted to conclude that, like on previous occasions, this time too nothing much will have been achieved after the dust raised by the BoT meeting has settled. It is against this wider canvas that the new thrust on two-way trade will also have to be seen. True, the $500-billion target by 2010 is ambitious, but that is not the problem that one is confronted with. After all, without ambition, nothing much can be achieved by those aspiring to reach the front ranks in their respective fields.

The problem here lies in whether the target is realistic or not; in other words, whether ambition here verges on being a mere figment of the imagination. Certainly, one would like India's participation in international trade to increase by leaps and bounds because what it would essentially reflect is the impressive pace of its economic progress and integration with the world market. The new trade target represents a 270 per cent increase over current performance.

According to official figures, the corresponding performance over the period 2000 to 2005 was around 195 per cent. Whether the 2010 target is overly ambitious or not will depend entirely on whether there is adequate back-up support for exports and general domestic economic activity to absorb an increased flow of imports. That will depend on, among other things, on infrastructure and investor-friendly labour laws. So where does one break the vicious circle? But break it one must if our dreams are to bear fruit tomorrow.

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