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WHAT'S NEW IN TRADE POLICY?

THE CONTEXT IN which the new Foreign Trade Policy (FTP) has been presented seems as important as the policy itself. It replaces the five-year Export Import Policy (2002-07), the most recent amendments to which were announced in January this year. At that time the NDA Government broke convention: exim policy statements have invariably been presented on the last day of the financial year. The justification was that the ensuing general election and the coming into force of the model code would cramp the substance and style of any major economic policy announcement. The new policy comes at a time when India's foreign trade is growing robustly. The impressive growth of merchandise exports, by no less than 20.3 per cent in dollar terms last year, has continued. There has been a better than 25 per cent rise in imports too, reflecting a marked revival in industrial activity. Oil will dominate the import bill this year, underlying the need for a further boost to exports. Finally, while fashioning a trade policy, issues connected with the World Trade Organisation (WTO) and the free trade agreements between India and other countries must be factored in. A framework agreement for the Doha round has recently been worked out in Geneva and Indian negotiators face the challenge of devising modalities in a number of critical areas. The new policy has been presented a day before the Indo-Thailand Free Trade Area becomes operational. Some more bilateral and regional trade agreements could be round the corner.

The FTP, according to the Government, is more than a change in nomenclature and has a much wider connotation than the exim policy it replaces. Promising an integrated approach to trade development, the FTP hopes to double the country's percentage share of global merchandise within the next five years and also generate substantial employment. For achieving these objectives, the Government will rely on some established strategies: loosen controls and create an atmosphere of trust; simplify procedures and reduce transaction costs; neutralise the incidence of levies and duties on inputs used in export products; facilitate technological and infrastructural upgradation in all sectors of the economy. The idea is also to revitalise the Board of Trade by redefining its role. While all this sounds fine, the real value of these measures will be known in their implementation. Agriculture and services now get their due in the export promotion framework. The new initiatives announced for agriculture and the other thrust areas such as handicrafts, handlooms, gem and jewellery, and leather and footwear are commendable. Nearly all these sectors have proved their worth in export performance. But the promotional steps proposed are not exactly original; they involve a liberal import of capital goods and raw material to aid the export effort. The Duty Entitlement Passbook Scheme will be persisted with until an alternative WTO compatible scheme is put in place.

The new Foreign Trade Policy does not suffer from a lack of vision. Further, it signals continuity with exim policy. Perhaps the largely procedural agenda covered by the trade policies can never break completely with the past. However, a foreign trade policy can succeed only in conjunction with other economic policies working towards similar goals. For instance, infrastructure constraints, resulting in congestion at ports, have been major bottlenecks that other countries have succeeded in eliminating. Foreign trade will benefit far more from relevant infrastructure development than from financial sops, as the experience of China over the past decade has demonstrated. Finally, with the WTO rules coming into play, fiscal concessions and other sops are no longer in the exclusive domain of national trade policies.

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