A Commerce Ministry for the 21st century

Pritam Banerjee | Updated on October 27, 2020

Export sops and trade promotion measures need to be revamped   -  The Hindu

Specialised departments for trade policy, negotiations and industrial development are of vital importance

The Ministry of Commerce and Industry is tasked with navigating the complex web of issues to support India’s industrial development and competitiveness, and its engagement with the global economy. This is a herculean task, and requires institutional depth and high levels of competence and domain expertise.

The world has changed radically in the last two-and-half decades, but the institutional structure and form of the Commerce Ministry has remained more or less intact. It is high time this Ministry was given a makeover that would allow for increasing specialisation and focus in keeping with its mandate.

Competent trade negotiators

The first suggestion is to create a specialised department focussed only on trade policy and negotiations headed by a Secretary. This department would be responsible for all negotiations for the WTO, FTAs, and other trade and investment related agreements. Unlike the current practice, senior officers including Joint and Additional Secretaries should have tenures of a minimum five years, and should be individuals with significant trade policy related experience.

Longer tenures would ensure institutional memory. India can ill afford to engage in complex negotiations in technical matters such as intellectual property, digital trade, or rules of origin with officers who have not had long exposure to these domains or trade negotiations.

Having a lead officer who until three months ago was managing the irrigation department in her State cadre square off with her European or Japanese counterpart who has spent the last decade of her life doing such negotiations is hardly the right strategy. Care has to be taken to logically reward officers who have invested in acquiring domain knowledge and expertise over the years with adequate promotions, irrespective of the cadre they belong to.

Competitiveness & value-chains

The second suggestion is to create a single department responsible for the country’s industrial development and competitiveness. This would require bringing together of the mandates of the Director-General of Foreign Trade (DGFT), the Department for Promotion of Industry and Internal Trade (DPIIT). Special Economic Zones (SEZs) and Export Promotion Councils (EPCs) would also be under this department’s ambit.

In a world defined by value-chains, the role of the DPIIT to inculcate industrial development and competitiveness has a natural interface with the DGFT’s mandate for incentivisation of Indian exports and the role played by EPCs in trade promotion.

This new department, let us call it the Department of Industrial Development and Competitiveness, would lead to rationalisation of the overall policy making and interventions required to address issues of industrial development, sectoral strategies and incentives, and export promotion.

Interventions to support competitiveness require a single comprehensive strategy specific to every value-chain, and putting them in silos that differentiate between domestic and external markets, and between export promotion and domestic industrial policies is counter-productive. This integrated department would end this current silo approach towards competitiveness and industrial development.

Export sops, trade promotion

Moreover, there is need for restructuring the export incentives and trade promotion efforts. Export incentives should be replaced by schemes that reward firms for new product development, expanding into new markets, for job creation, or for significant achievements in value-addition. Managing such schemes credibly would have been impossible a decade ago due to lack of systemic access to data that measure such achievements.

But with the digital information available with GSTN, Customs ICEGATE, the RBI, Unique LIN linked to EPFO and ESIC, and the JAM trinity, this has become very easy. In fact, smart algorithms can use these databases to reward points to firms for value-addition, product diversification, new market development, or job creation, and these reward points could become the basis of incentives.

The incentives themselves could become more expansive in nature to include tax rebates, a system for lower-cost access to credit, and trade facilitation schemes. Dynamic MSMEs would be the biggest beneficiaries of such a transformation of incentive programmes.

Export Promotion Councils (EPCs) have been largely reduced to being event managers who occasionally lobby government on behalf of their sector. EPCs should be made responsible for systemically collecting data and commercial intelligence in their sector, mapping global market opportunities and potential sources of competition. These reports would also serve as invaluable inputs to trade negotiators working in the trade policy department.

The casual approach to commercial intelligence gathering by Indian missions abroad needs to change, and officers deployed need to be made accountable to specific EPCs, and their assessment should depend on an independent audit of the intelligence and leads they generated for EPCs annually. An anonymous committee drawn from industry members in EPCs should be made responsible for this audit.

EPCs should also be made responsible for actual buyer-seller matching, and successful conclusion of deals achieved due to their efforts should be formally certified by beneficiary member firms. The level of financial support and salaries of EPC staff should be directly linked to such certifiable success in deal making. Last, but not the least, a dedicated grievance redress mechanism for members who have not received adequate level of support or information from their EPCs should be set up, chaired by the Secretary of the department.

The third recommendation is that the Logistics Division should become a full-fledged department headed by a Secretary.

In addition to its mandate for providing holistic institutional basis to coordinate logistics infrastructure development, master-planning, and policy development, it should also be made responsible for Trade Facilitation.

There is an intrinsic link between logistics and trade facilitation, and keeping them in separate silos is counter productive. The Logistics Division should become the secretariat for the National Trade Facilitation Committee (NTFC), and be made responsible for framing the National Trade Facilitation Action Plan (NTFAP) and its implementation.

In order to infuse Customs related domain expertise, officers from Customs could be seconded to the Logistics Division to support the NTFC related activities.

The author is an independent trade policy and logistics expert. He would like to acknowledge his mentor, Dr Jayanta Roy’s role for many of the ideas presented in the article

Published on October 27, 2020

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