Guest Column

Tricks of the tradeIt is true that industrial production and exports have picked up in the first quarter of the current year. Exports had...

Tricks of the trade

It is true that industrial production and exports have picked up in the first quarter of the current year. Exports had risen by 6.5 per cent in April-June 1999 as against a fall of 7.8 per cent in the same period of last year. However, if the government reduces the high transaction costs and takes measures to neutralise the disability factor, exports can show a higher growth of 25-30 per cent and counter the challenges posed by China and other South-East Asian countries.

The disability factor against exports now works out to almost 17 per cent. These include sales tax, octroi, high interest charges and so on. Due to these hurdles, Indian exports are not competitive when compared to China and South-East Asian countries. We8217;re happy that the government has announced a committee regarding the high transaction costs.

This issue needs to be tackled urgently. This is the right time for the government to act as industrial production has picked up, inflation is low, rupee is stableand forex reserves are comfortable. Still, our exports are not as competitive as our counterparts like China and South-East Asia. This is because there is no disadvantage of high cost of transaction in these countries. On the other hand, Indian exporters have to deal with many agencies for delivery of goods. Countries like Thailand, Korea, Philippines, Malaysia and Indonesia which faced big problems last year are recovering now.

China has now become a major competitor for India in the world market. China was unable to devalue its currency due to international pressure. If they devalue their currency, it will affect many other world currencies. However, China8217;s export figures have turned negative in the current year. This seems to have disturbed the Chinese government. Industrial production is piling up in China. In order to help the exporters, the Chinese government has increased the subsidy substantially. China imposed an additional 3 per cent subsidy on the then existing 8 per cent subsidy in July.Thereafter in August, it is believed to have put another 4 per cent subsidy. Now the export subsidy in China ranges from 11 to 14 per cent.

It is important to note that China is not a member of World Trade Organisation WTO. But India is a member of WTO and is bound by its regulations. With the help of big subsidy, Chinese exporters are able to reduce the prices of their products and they are exporting the same to America, Europe, Africa. Our exporters are facing unfair competition from China. We should not lose export markets.

The government should consider extending ad hoc subsidy by increasing DEPB duty entitlement passbook scheme, offering subsidy like the previous CCS cash compensatory support and slashing export interest rates from 10 per cent to 6 per cent. This will enable Indian exporters to compete with China and South-East Asian countries.

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As a result of dumping, freight charges return freight from India to China and South-East Asian countries are now virtually free. Freight chargesfor ships going back from India have come down to 175 per container from 700 per container a year ago. Things have now reached such a stage that I fear we may not be able to achieve the ambitious target of 30 per cent growth in chemical exports due to the unhealthy competition.

Moreover, crude oil prices have shot up from 10 to 21 per barrel. It8217;s not that the situation has not improved in India. The fact is that other countries are taking measures in such a way that our goods are not competitive. India should also take steps to face the challenges posed by other countries. If corrective measures are not taken, we will miss the bus again.

The author is the Chairman of CHEMEXCIL