Discussion on Impact of New Exim Policy
Impact of New Exim Policy
The Government has dismantled the system of quantitative restrictions (QRs) on imports and announced a strategy to promote agricultural exports as a step towards achieving a one percent share in global trade. With this all imports are free from QRs, except defence goods, environmentally hazardous goods and some other items that come under special import restrictions. The process of import liberalisation, which began in 1991, is now complete as far as QRs are concerned. With QRs removed, a wide range of products, ranging from automobiles to coconuts to pencils and exercise books, can now be imported. The 715 items on which QRs have been removed included 342 textile products, 147 agricultural products including alcoholic beverages and 226 other manufactured products including automobiles. The policy has announced ambitious targets, such as raising India's 'share of global trade to 1 percent from 0.7 percent at present. To make this happen exports have to grow by 18 percent a year. The Commerce Ministry has based its export growth projections on a Gross Domestic Product (GDP) growth of 7 percent per annum over the next 10 years.
India's share of world trade at the time of Independence stood at 2 percent but gradually went down to 0.4 percent by the mid- nineties. India faced a critical year in 1998-99 when export growth declined to 5.1 percent. However, there was a sharp turnaround in 1999-2000 when exports grew to 13.2 percent. As the third-largest producer of food grains in the world, what is needed is a reorganisation of India's export efforts and specific geographical areas. For this the Exim (Export-Import) Policy announced new export promotion schemes such as Market Access Initiative (MAI) and Special Export Zones (SEZs). There are many agricultural regions which have constraints in fully participating in international trade because of various critical gaps including information on prices, demand and quality standards. The present policy is aimed at filling these gaps and playing an important role of transmitting international signals to farmers and enabling them to respond to these signals through the states.
The government has also made it very apparent that protection will continue both in the form of tariff and non-tariff barriers. Even then some segments of industry and agriculture have been clamouring for more. In this context, it would be opportune to analyse the impact of lifting QRs.
To safeguard against criticisms, in the new Exim Policy, a number of non-tariff barriers have been erected in 'Sensitive' sectors to give the domestic industry a chance to survive and build its competitiveness. The QRs on the 715 items may have been removed to meet the World Trade Organisation's (WTO) obligation, but domestic industry can take consolation from the fact that 300 of these items have been shifted to 'Watch-list' and classify as 'Sensitive' items of public importance. The watch list is to be constantly reviewed and updated depending upon the import pattern. The ultimate objective would be to protect the domestic industry from the "surge of imports". The WTO agreement allows for reimposing QRs on temporary basis if the domestic industry faces a major threat from imports.
Let us analyse the extent of protection to certain individual items in different sectors of the economy. The import of second- hand cars has been allowed, but to ensure that it does not adversely affect the domestic car companies a host of conditions have been placed, such as they cannot be more than three-years old, must be right-hand drive, and must be imported through the Mumbai port after paying a duty of 180 per cent. Similar safeguards have been put on imported liquor. In case of liquor, the government is imposing high countervailing duties - equal to the highest state excise in addition to the high customs duty. Likewise farm goods can be imported only through State Trading Corporations. Moreover, import of all food products would be subject to biological and genetic norms and rules. Again, the import duty on milk, milk powder and chicken legs has been raised sufficiently to ensure protection to domestic producers. The import penetration of these products is likely to be minimal since India does not have the essential infrastructure like cold chains and the systems in India are not capable of holding such stocks.
In the changing scenario of foreign trade where global openness is the key element, there is a strong case for the Exim Policy to move away from the' short-term balance of trade considerations to medium-term perspectives for accelerating growth in exports as a platform for industrial development, employment generation and for foreign exchange earnings. The removal of quantitative restrictions on the remaining 715 items has opened the gates for free flow of imports. One of the positive features of this policy is the agro-exports. The share of agriculture in total exports has been falling in the last three years. Unfortunately agricultural prices in India are comparatively higher than many competitors. So the government has to prevent foreign agricultural goods through higher non-tariff barriers. But having signed the WTO agreement in 1995, India has very few options on this. However, one can only hope that this does not trigger complacency, particularly in an age where only the fittest survive.