On course for reform

The new export-import policy both gives the lie to this government8217;s bluster on resisting the intrusions of the world trade regime, as well as cause to reserve judgment on the liberalism of its trade policy. True to expectation, the Ministry of Commerce has kept to, and even exceeded, the schedule for the opening up of imports it had previously agreed to with several of India8217;s trading partners. This is all to the good, but it is not remarkable. Still, for those seeking signals about which way this government will swing, it indicates that for all its muscular talk the BJP is well aware of its obligations and intends to meet them.

That said, the mere transferring of a large number of items from the restricted list of imports to the open general licence does not mean much in terms of trade liberalisation unless accompanied by significantly lower tariffs. All it means is that India is on course to correct its anomaly of quantitative restrictions on imports by replacing them with tariffs. The proof of a realopening up will lie in the government8217;s willingness also to lower tariffs so as to make imports compete more effectively with domestic products. In the case of most of the consumer goods whose imports have been freed, for instance, tariffs remain at some 70-odd per cent. This is not only exceptionally high by international standards but also by India8217;s own general level of import tariffs. Thus effective protection to Indian industry in these goods remains very high indeed. As it happens, it is precisely on tariffs that the BJP has been tomtomming its commitment to protect domestic industry, and to actually raise certain tariffs where they have been lowered to levels below those internationally committed. So for the real test of the BJP8217;s reformist instincts in the external sector, the Union Budget should yield more clues.

Meanwhile, the government has sought to compensate domestic industry and exporters through the setting up of an anti-dumping cell and a call for the institution of an infrastructureministry, apart from several specific incentives to exporters: imports by exporters have been sharply liberalised. An anti-dumping cell should answer to the complaint of many that India responds inadequately to selling below cost by foreign exporters here, thereby damaging Indian industry. This perception is not necessarily correct. India is a prolific enough user of anti-dumping provisions, but perhaps not an efficient one. As to the various export-incentive schemes, these can at best be stop-gap measures at a time of an unquestionable crisis in exports. Far more thorough-going and ultimately important is the idea of an infrastructure ministry, whose efficacy however will have to be judged on detail. In fact the two factors that most inhibit India8217;s export effort are the long-term issues of poor infrastructure and supply-side problems, apart from a currently overvalued rupee in the wake of the Asian crisis. In the final analysis foreign trade is inextricably linked with the openness and efficiency of theoverall economy. How the new government addresses this humongous challenge will decide the fate of India8217;s trading fortunes as much as of the Indian economy at large.