• PAGE ONE
• INDEX
• HOME

Making a mark in foreign trade

Ranabir Ray Choudhury

FIRST, let us take the latest actual performance figures for visible trade in the current financial year.

Early in December, provisional export estimates made by the Directorate-General of Commercial Intelligence and Statistics for April to October, indicate that performance was higher by 20.51 per cent against the corresponding period last year. In absolute terms, exports during the seven-month period were worth $25.01 billion against $20.76 billion last year. The growth in October alone was reported to be about $3.69 billion (16.8 per cent) against $3.15 billion last year.

As regards imports, the performance this year (April-October) was up by 14 per cent. In absolute terms, the increase was from $26.55 billion in the corresponding period last year to $30.27 billion this year. Interestingly, however, during the period unde r focus, oil imports rose by as much as $84.15 per cent (because of the relative price explosion) -- from $5.27 billion last year to $9.73 billion this year. Even more interesting than the oil import figures is the non-oil import performance which actual ly declined by about 3.48 per cent in the seven-month period -- that is, from $21.28 billion to $20.54 billion.

If non-oil imports are any indication of a poor economy's state of activity (generally, speaking, the higher the activity, the greater the need for essential imports and, therefore, the higher the import of non-oil items), the performance of Indian non-o il imports during the first seven months of this year indicates clearly that national economic activity is not exactly what it should be.

Thus, going by these figures, the trade situation is ``good'' in that the trade deficit for the April-October period has been put at $5.26 billion against $5.80 billion in the same period in 1999-2000. Moreover, the immediate outlook appears to be rosy, primarily because of the chances of the value of oil imports growing at a slower pace in the remaining months of this financial year owing to the decline in world oil prices. Ordinarily, this should bring cheer to the country because of the consequent de cline in the trade deficit. But, of course, in the Indian context, this would be a wrong way to interpret current and future trade-deficit movements. As explained above, for a poor country such as India, which has to rely on the world economy for a subst antial part of its essential imports (mainly for manufacturing and technological back-up), the higher such imports (possibly leading to a rising trade deficit), the stronger the inference that economic activity is rising, as indeed, it should in a fast-g rowing economy. But, as the non-oil import figures show, this is not the case with India at the moment which, in fact, is doubly unfortunate in view of the fact that the foreign exchange reserves position (at nearly $40 billion) is healthy enough to sust ain a much higher level of trade deficit.

Indeed, going by just the non-oil import figures, one can suggest with some confidence that the economy is currently in a ``slowdown mode'', an insinuation which will be strongly refuted (as it has already been) by the Finance Minister, Mr Yashwant Sinha . In the middle of November, Mr Sinha came out strongly against the view that the economy had entered a phase of regression. He is reported to have said that ``the slowdown (in the first quarter) is being projected as though there is a catastrophe, which is not true, as is evident from the fact that revenues are buoyant''.

Mr Sinha is, of course, entitled to his point of view, and one has to keep in mind the all-important fact that a Finance Minister cannot spread the message of gloom -- even when there is nothing fictitious about such a message -- if only for the sake of the immediate future of the economy itself not to mention the inevitable stock-market blues. But the hard fact is that, even going by the ``revenues'' argument, there is nothing to be happy about since Mr Sinha himself has admitted that the Customs and i ndirect tax-collection performance for this* financial year may not be quite up to the mark.

Getting back to the subject of trade performance, it can be said that 2000-2001 will be some kind of a watershed year for the economy not because of any structural shift in the nature of economic activity brought about by the reforms policies (both first and generation) implemented by the Government but because of the likely impact on the economy of the fact that the country has to carry out its obligations under the WTO regime. In a nutshell, the economy will have to lower a large number of quantitativ e restrictions on imports by April next year, which would effectively mean that foreign goods will have greater access to the domestic market, which will be reflected in higher import figures.

In fact, the ball has been set rolling by those opposed to this opening up of the economy under the WTO auspices by the current campaign against cheap Chinese products (not those that are smuggled in) which are increasingly being found in the home market . There is no doubt whatever, that Chinese goods are entering the country in ever larger numbers than before, and also that these items are much cheaper than competing Indian products. One clear result of this activity is that domestic manufacturing inte rests are been hurt, which is certainly undesirable from a nationalist economic point of view. However, a second equally important consequence in that the average consumer is suddenly finding himself in the enviable situation of being given a better choi ce of products at reasonable prices than previously, which is also desirable from the point of view of Indian consumers.

Whether increasing trade of this sort -- promoted by WTO stipulations which the country has accepted at the sovereign-nation level -- needs to be curbed for the benefit of domestic manufacturers is a highly debatable issue and, needless to say, that deba te has already started in full swing because of the disastrous economic implications for domestic manufacturers, both of the efficient variety and otherwise. But the fact remains that the Indian trade picture will never again be seen in the way it has al ways been viewed during the past decades. Briefly, the Government cannot prevent foreign goods from entering the domestic market under normal conditions although it is within its powers to slap tariffs permitted by WTO guidelines which would make such im ports less competitive vis-a-vis Indian products.

But, clearly, the tariff route, although of temporary value, cannot be a permanent solution to the problem of rising imports, which has the sanction of the international community at the level of a solemnly agreed on contract. So what is to be done to pr event the trade situation from getting out of hand in the years ahead? One possible way out has been suggested by the CII, namely, (in the words of its Director-General, Mr Tarun Das) ``Chinese exporters will aggressively target our market in the initial stages. Rather than running scared, we should tap their market and look at areas where we can push Indian products. We should look at where we can score.''

But how can Indian industry ``score'' in foreign markets, which will have the effect of increasing exports, which would, in turn, look after the higher import bill resulting from a WTO-compliant freer trade regime? Obviously, by turning out superior-qual ity goods at reasonable prices and backed by efficient marketing techniques and reliable infrastructural facilities such as smooth port operations, *and so on. Clearly, if Indian industry can do this for exports, there is no reason why the entire scenari o of efficient production, etc. cannot be shifted to the domestic market, which would imply that foreign products would face stiff competition from competing Indian products in the domestic market itself.

All this is, of course, easier said than done. The problem, however, is that there appears to be no other way out for the country if it is not to renege on its international commitments, on the one hand, and (perhaps of more importance), if the average I ndian citizen is to get value for the money he spends on the stuff he buys from the market, on the other.