The Hindu Business Line : Strategising to create more employment

The latest Annual Supplement to the Trade Policy has measures to identify and nurture special focus areas, which would generate additional employment opportunities particularly in the semi-urban and rural areas.

Releasing the Annual Supplement to the Foreign Trade Policy, 2004-09, on April 7, the Commerce Minister, Mr Kamal Nath said: "I am delighted to share with you that merchandise exports have crossed the `magic figure' of $100 billion.

"In fact, they have touched the `auspicious figure' of $101 billion. The annual growth rate is 25 per cent." But he missed another rather important reason for celebration.

The evidence in the Table below indicates that the country's exports, for most of the past 15 years, were pumped up in rupee terms via continuous depreciation of the currency.

In the recent three years in a row, however, growth rate of dollar value of exports is higher than the rupee value. For a change, the rupee appreciated modestly, without necessarily hampering the northward march of exports. This is even a better cause for celebration.

RATIONALE FOR TWO KEY POLICY INITIATIVES

Of the 98 major groups of commodities that enter merchandise exports, the share of top 25 was a high 77 per cent in 2001-02, which further rose to over 80 per cent in 2004-05 and the first half of fiscal 2005-06. Similarly, of the 235 markets shown in trade statistics, the top 25 accounted for 80 per cent of the total exports.

One should thus welcome policies aimed at product and market diversification. The issue is not whether or not to aim for the twin diversifications; instead, it is what policies are to drive trade towards those goals. Just as devaluation can at best temporarily drive exports up, duty concessions and duty drawbacks too can only do so much. As import tariffs fall to levels close to 10 per cent or less, the need to tinker with duties is no longer a viable option for export diversification in terms of commodities and markets.

It is true that product and market diversifications are essential to ensuring a fairly high rate of export growth on a sustained basis. It is also true that a relatively high rate of export growth can propel GDP growth. However, both export and economic growth are not ends in themselves, but only the means to an end: Employment growth on a scale appropriate to the full utilisation of the growing labour force, a fact emphasised in the Trade Policy.

NURTURING KEY AREAS

The latest Annual Supplement to the Trade Policy has measures for identifying and nurturing special focus areas, which would generate additional employment opportunities particularly in the semi-urban and rural areas. Since some of the traditional rural industry products could generate relatively large employment per unit of investment, "it was resolved that such products should be given a further fillip."

An employment-oriented Trade Policy calls for elements of strategy that go beyond duty drawbacks (or duty credit facilities), more special economic zones and the like. Instead, the strategy should be pro-active and result (employment) oriented.

For instance, linking handicrafts, toys and cottage industry products to world market should be driven by demand from the American, European and East Asian supermarket chains. Similarly, foreign direct investment should be welcomed into activities that provide jobs, while at the same time promoting diversified exports and new export markets.

It is most likely that Indian tariff structure will, in a few years, simply be one of zero duty on designated raw materials and uniform 10 per cent on all other goods.

Duty drawbacks and concessions would lose relevance. In fact, there may not be much to say in a trade policy, since others, such as fiscal, FDI and labour policies, are the ones that count in promoting trade.

(The author, formerly with the National University of Singapore and the World Bank, is Professor Emeritus, GITAM Institute of Foreign Trade, Visakhapatnam. He can be reached at bhanoji@gmail.com. This article is based on a presentation by the author at a Round Table Discussion on Trade Policy organised by GITAM Institute in Hyderabad on April 10.)

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