S Murlidharan

CAD mess, a result of free imports

S. MURLIDHARAN | Updated on November 22, 2017

Import computer chips, not potato chips.

Foreign exchange outflows, through imports and royalty, could have been curtailed.

The Bharatiya Janata Party and its allies, which spare no opportunity to embarrass the UPA-II over the current account deficit (CAD) and the tumbling rupee, must share some of the blame for the current mess.

The NDA government was in a tearing hurry to kowtow to the World Trade Organisation (WTO) and dismantled the import control regime, besides slashing the peak rate of Customs duty. It abolished in 2001 profit-based income tax incentives for exporters of goods and services, anticipating a rap from WTO.

It was ironic that the BJP, whose leaders talked about importing computer chips and not potato chips, in the context of desirability of allowing FDI into the country, ended up allowing imports of just about anything.

import REGIME

The free trade-FDI debate is as old as the hills. It is elementary that we should have rolled out the red carpet for FDI rather than free trade.

The lopsided priority has resulted in import-export imbalance. Except in the automobile sector, we have not been able to attract FDI on a scale that would brought in permanent foreign exchange, besides arresting the outflow of precious forex on account of imports.

Why have we been importing electronic components when we could have produced it domestically? This is a valid concern and was raised by Finance Minister P. Chidambaram in the Lok Sabha.

The free import regime encouraged kickbacks.

That Air-India placed an upfront purchase order for as many as 110 civilian aircraft perhaps tells its own story. Its private sector competitor, Indigo, wisely entered into a long-term agreement for the same number of aircraft, to be acquired over some 20 years at a predetermined price. Small wonder the CAG criticised the Air India deal in his report.

Here-and-now imports with immediate payment hurts. It is all fine to root for imports and free trade, but not until the world finds a satisfactory exchange rate regime.

Why Dollar?

The current regime is hardly satisfactory, what with the entire world held hostage by a single currency — the US dollar. That a country accounting for 22 per cent of the world’s GDP should be accounting for upwards of 70 per cent of the international financial settlements is an oddity, more so when the US economy is not in the pink of health.

The first-mover advantage the dollar gained in 1944 by foisting its currency on the rest of the world is what is keeping the greenback going.

We should tell the world bluntly that free trade is simply not on till the international currency issue is sorted out satisfactorily.

The US would not take the lead in its own enlightened self-interest, and China wouldn’t for fear of shooting itself in the foot.

Managing forex outgo

Even as FDI has trickled in, it has led to outflows. How can we allow foreign collaborators to take what they please by way of royalty, even if it means slashing dividends?

Why should we dictate to foreign retail chains how much they must compulsorily source from medium and small-scale enterprises within the country, when we can make it plain to them that whatever they do, there should be no foreign exchange outgo from the country?

Students studying abroad are another source of outflows. August has been an important month in the country’s forex calendar — students leave in droves to the US for higher education.

Parents of these students have had to stretch themselves because of the the steep fall in the value of the rupee.

Couldn’t the Indian government have walked the talk and brought Ivy League foreign universities here?

This would have helped save precious foreign exchange.

(The author is a New Delhi-based chartered accountant.)

Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

Published on September 12, 2013
null
This article is closed for comments.
Please Email the Editor