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Will exim policy go dream budget way?

Rajesh Ramachandran in New Delhi

The new export-import policy for 1997-2002, unveiled on Monday by Union Commerce Minister Ramakrishna Hegde, could go the way of Chidambaram's dream budget, fear economists.

The biggest complaint is that there is no immediate 100-day measure to revitalise exports while the 20 per cent growth rate seems to be too good to be attained in the time of an economic crisis.

The stiff export growth rate target of 20 per cent set by Hegde is what unnerves observers. "They are all paper promises. It is highly unlikely that this target would be attained, because the rate of export growth last year was just four per cent," Dr S P Gupta, director, Indian Council for Research on International Economic Relations, told Rediff On The Net.

"According to an International Monetary Fund report," added Gupta, "the rate of growth for the last three months beginning January was a poor 2.5 per cent. How can you envisage a giant leap to 20 per cent?"

Gupta points out that when even world trade is pegged at 5 to 5.5 per cent, India, with its traditional, limited export basket, would find it extremely difficult to increase its penetration in the world trade in such a dramatic manner.

Even Bharatiya Janata Party ideologues are not too happy with the exim policy which they feel is more in line with the earlier United Front government's policies, a sentiment echoed by policy analysts too.

The silver lining, according to the BJP's economic cell convener, Dr Jagdish Shettigar, is that the exim policy has gone ahead with deregulation by making export-import processes simplified.

But it goes against the BJP's avowed swadeshi policy to toe the World Trade Organisation's line and remove 340 items, mostly white goods, from the restricted list and put it in the open general license.

Moreover, import liberalisation has been pointed out as one of the areas where former finance minister Palaniappan Chidambaram failed in his estimates.

Chidambaram, after liberalising import tariffs, had projected customs collection of Rs 525.5 billion, whereas the actual revenue the last financial year was around a mere Rs 410 billion.

Now, as per the new policy -- the Duty Entitlement Pass Book and Export Promotion Capital Goods schemes -- are projected to incur a revenue loss of Rs 35 billion. And declining customs revenue is one of the reasons for the burgeoning fiscal deficit.

To offset his revenue loss, the quantity of imports will have to increase considerably. But analysts point out that the white goods that are likely to come into India will be more expensive than the Indian brands, and thus would not make a huge dent in the market, at least not in the near future.

"I don't know why they did it," said Dr Gupta, "I never thought they would go ahead with import liberalisation. The areas of import relaxation are not the areas where the export industry is involved so there is no justification for the import liberalisation."

Another area of worry is the effect of imports into a market which is already reeling under a very slow growth rate. Chidambaram had targetted excise collections last year at Rs 522 billion, actual revenue was Rs 477 billion.

In such a scenario, if there is a deluge of white goods into a market which is already on a freebies spree, the result could obviously a further serious depression and hence a worse year for excise collectors.

Dr Shettigar, however, counters the argument saying that the forthcoming Budget would solve the problem by fixing import tariffs.

"The government has only removed the WTO prescribed quantitative restrictions requirements that could not have been postponed. The exim policy has only announced certain entitlements and threshold limits, primarily to encourage the small scale sector. As for the white goods, their tariffs would be decided in the Budget."

Shettigar asserts that measures undertaken in the exim policy which go against the swadeshi principles of the ruling party would be offset by "fiscal measures" in the Budget.

But if the BJP government retracts from its proclaimed stand of renegotiation at the WTO, it will not be able to hike the tariffs beyond the WTO prescriptions.

Above all, there are non-tariff barrier bogeys such as pollution and child labour which could seriously affect Indian imports to Europe. For instance, shrimp exports have come to a standstill with many European Union countries refusing to accept Indian products on grounds of substandard hygienic conditions in the Indian processing zones.

Another major problem for the Indian exporters, one that Hegde consciously avoided dwelling on, was the exchange rate of the rupee against the US dollar.

Exporters' have been complaining that the real exchange rate is Rs 42 to Rs 43 per dollar, compared to the present market value of less than Rs 40 to the dollar. They insist that Indian exports would be profitable vis-a-vis the depreciated East Asian currencies only if the rupee value goes down further from its current value.

While Hegde acknowledged their difficulty, he pointed out that the exchange rate is a floating one, determined by the market forces. He also ruled out going in for a favourable fixed rate.

Analysts also blame the exporters for not repatriating their full earnings and said the exporters were waiting for the rupee to depreciate further so that they can earn a premium on the hawala (illegal) exchange.

With all these inherent ailments, it will need more than an extra effort to raise Indian exports to a double-digit figure.

"Till then," warns Gupta, "one should not give emphasis to the unreal thinking that our export growth rate will shoot up to 20 per cent overnight. It will only create a euphoria like what we saw in the East Asian economies."

EARLIER REPORT:
Exim policy seeks export thrust