Trade policy in difficult times


The Hindu (India)
August 27, 2009

The new Foreign Trade Policy (FTP) for the period 2009-14 unveiled by Commerce Minister Anand Sharma on Thursday aims at continuing the thrust of the previous FTP. The new policy is, however, realistic enough to admit that the goals set five years ago remain out of reach. The global recession has caused a sharp contraction in demand in India’s principal markets. The WTO and the IMF expect world trade in volume terms to contract by between 9 per cent and 11 per cent during 2009. In 2004, the FTP had set an ambitious target of doubling India’s share in world trade in five years. That has now been postponed to the year 2020. Given the continuing uncertainties in the world economy, the Commerce Minister has fixed short-term targets. He expects exports to touch $200 billion by 2011 when the five-year FTP will be reviewed. For 2009-10, the export target has been fixed at $168 billion, the level touched last year. The other major objective of generating economic growth and employment remains valid, although in the near term the key task is to arrest and reverse the declining trend in exports. While promising a special thrust to the employment-oriented sectors that have suffered job losses — especially textiles, leather, and handicrafts — the FTP is short on specific measures. Reducing transaction costs, improving infrastructure, and lowering the cost of export credit are key areas that depend on the performance of other ministries.

Exports have been contracting for 10 months in a row. Although the proportion of trade in India’s GDP is not large, the global recession has taken a toll on the external sector. One area of concern the FTP has not highlighted is the fall in imports in tandem with exports. In July, imports fell by about 36 per cent, continuing a decline that started six months ago. Lower non-oil imports indicate a slowdown in the domestic investment. Lower imports have narrowed the merchandise trade deficit in the balance of payments, an outcome that would be favourable had it been achieved through robust export performance. The FTP has extended the tax holiday for export units by one year and the duty refund scheme up to December 2010, besides enhancing the assistance for developing new markets. One other worry relates to growing protectionism abroad, especially in the developed countries. India which has recently concluded trade agreements with South Korea and Asean hopes to play a major role in restarting the Doha development round of talks. Some of India’s export promotion schemes such as the Duty Entitlement Pass Book Scheme are not compatible with the WTO rules and need to be taken up for review.

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