The Hindu Business Line : Restraints on trade

Restrictive trade policies, especially when production is abundant, not only choke the commodities trade, they send wrong signals to farmers and potential investors.

Supply-side issues and the pressure to rein in galloping prices of food articles have combined to force the government to restrict and, in many cases, prohibit outright the export of a number of commodities. The latest to join the ‘ban’ bandwagon is maize (corn). Export of essential food items such as pulses, rice (non-basmati) and wheat is already prohibited. There are also restrictions on domestic trade, such as storage limits, and so on. Although legally justified, such policy actions clearly militate against the spirit of economic liberalisation and professed trade freedom — foreign and domestic. In recent times, the highly restrictive trade policies seem to be based more on socio-economic and political compulsions, and have less to do with market fundamentals.

On the one hand, the government claims credit for record agricultural output in 2007-08 with food-grains, cotton, sugarcane and oilseeds registering new highs; on the other, is the regressive measure, often resorted to, of barring exports. How does one reconcile the two conflicting situations of abundant production and trade restriction? If the trade and industry dealing in essential commodities feel choked by debatable restrictions, it is fully justified. To attract investment in procurement, processing and infrastructure, the need is for long-term trade policies that remain largely undisturbed, except in case of abnormal supply-side developments beyond the control of the policy-makers — such as drought.

To a great extent, the current supply-side issues relating to food products reflect the failure of the government’s agricultural policies to boost growth in farm output and make farming remunerative. New Delhi will have a lot of explaining to do. The treatment of pre-ban commitments is often whimsical. In some cases, even transitional arrangements are barred (non-basmati rice), while in others it is allowed (maize export against Letter of Credit). Such anomalies are avoidable. Another aspect is that the government notifications communicating a trade decision (such as a ban on export) often state that it is issued in ‘public interest’. It is time the ‘public interest’ argument was challenged in a court of law, with the government being asked to explain how it is so. There should be more transparency in government decision-making. Trade and industry or businesses, in general, cannot flourish in conditions of uncertainty. Seldom would one challenge restrictions that are reasonable, and demonstrably so. The policymakers are duty-bound to demonstrate that there is a reasonable nexus between the legislation and the object sought to be achieved, as enshrined in the Constitution.

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