Compensatory moves

Save India, or at least its exporters, from itself. That, in a nutshell, is the essence of Commerce and Industry Minister Murasoli Maran14...

Save India, or at least its exporters, from itself. That, in a nutshell, is the essence of Commerce and Industry Minister Murasoli Maran8217;s five-year export-import Exim policy. For a long time now, the CII-FICCI8217;s have argued they8217;re not competitive because of the high-cost power in the country, because of poor roads, because of the high cost of finance and so on 8212; estimates vary, but the total of this disadvantage is around 10-15 per cent. Maran seeks to compensate exporters for precisely these disadvantages. Thus, Indian banks are to set up special branches in export zones and since these will not have to deposit part of their funds in low-yielding government-securities, they will be in a position to lend to exporters at near-global rates. Similarly, firms in these zones are to be allowed to access cheaper foreign capital for even their working capital. Firms are to be given a subsidy to take care of the high fuel costs they incur, a transport subsidy is to take care of the extra time/hassles encountered by exporters using India8217;s pathetic roads network, and so on.

Will all this, and the other sops announced 8212; norms for duty-free imports against exports have been generally eased 8212; help eliminate India8217;s virtual export famine? Even at the risk of sounding predictably pessimistic, we think it8217;s unlikely. A caveat is in order though 8212; given the US recovery along with that of the global economy, India8217;s exports will most certainly pick up. The question is how significant the rebound will be, and to what extent the policy will help. Let8217;s take agriculture, where Maran expects a big push, and hence his moves to remove quantitative and other restrictions that strangulated our export effort. The moves are welcome, but the problem with India8217;s poor farm exports is different. It8217;s to do with the fact that India8217;s productivity is far lower than global averages. And this, in turn, has to do with the poor levels of investment being made, itself a result of the self-defeating subsidies policy. Similarly, until all state governments allow free movement of agricultural produce, till India itself becomes one market, India8217;s farm exports can never be really competitive.

Several of India8217;s exports, in fact, take place only because of sheltered markets overseas, and the moment this goes, will suffer badly. The textiles sector remains remarkably uncompetitive and exports take place primarily because the Multi Fibre Agreement has quotas for exports from each country. Similarly, it8217;s only the huge subsidies in the European market that allow India8217;s basmati to be exportable 8212; Californian rice costs around half ours. The answer is simple: India cannot afford to go slow on internal reforms. Special export zones, it is true, have helped create zones of excellence in countries such as China. In India, by contrast, these zones haven8217;t taken off as they have not been allowed the same freedom 8212; hire-and-fire policies, for instance, aren8217;t allowed in India8217;s export zones. Maran8217;s antidote for this, any doctor will tell you, could probably work if the India-virus was not so all pervasive. Under the circumstances, it seems a waste of what8217;s probably a very good serum.