Our first priority should be to reduce the massive trade transaction costs that are plaguing the Indian economy. Paper work and signatures required to undertake trade defy all logic. We immediately need to fully implement the Ministry of Finance 2004 Report of the Working Group on Trade Facilitation (WGTF) that I chaired. Piecemeal actions taken so far will not do. What are the main problems identified in the WGTF report? First, we have a complex set of documents required for export clearance from 29 different government agencies, requiring 257 signatures. Hence, several days are lost before goods reach ports and airports. Second, after this paper chase, the exporter/importer has to wait for days to ship cargo from airports and ports. Typical cargo dwell time at airports is about two days, against an international norm of about 12 hours. For containerised sea freight, the cargo dwell time for imports is over a week, compared with the global norm of a few hours.
The WGTF focused only on the second problem. The first problem can be addressed by adopting a single-window inspection, as illustrated by the Singapore TradeNet. UN/CEFACT has also developed a unified set of documentation, based on analysis of single windows in countries that have successfully implemented the scheme. We need to immediately fully implement national single windows involving all clearing agencies in all ports, airports, and land borders.
Delays in payment of duty, time taken by importers to file declarations and getting clearance from other ministries are the main contributing factors to high cargo dwell time. Unlike our competitors, we do not allow a line of credit, use of credit cards or a deferred payment system. If this is taken care of immediately, cargo dwell time could be reduced by about two days.
Then, there are delays associated with clearance requirements from other ministries to safeguard health, safety, security, and environment concerns. In most countries, this is taken care of by reliance on a sound risk management system, to which we are now committed. The collaboration of the Centre and the states can also help reduce delays. After paying customs duties, an importer has to pay a tax on transfers between states, which causes further delay. This needs to be abolished under the GST.
The real problem, however, is that there are too many agencies involved, with no real accountability. Given our software capabilities, we should have established a paperless system with no human interface, through full implementation of the electronic data interface (EDI) system. Although customs is covering over 90 per cent of the total declarations through EDI, other agencies are lagging considerably. We cannot avoid face-to-face contacts and a paper trail, unless other agencies are in line with the customs. Placing one authority in charge of trade facilitation is urgently required.
We have no line ministry whose primary function is trade or logistics facilitation. Areas of concern are the administrative responsibility of several ministries and agencies - ministries of commerce and industry, finance, shipping and ports, surface transport, railways, and civil aviation. Allied agencies at the border that govern regulations related to technical standards include ministries of agriculture, food, health, environment, among others. This means genuine industry efforts to lobby for reforms get diluted, given the multiplicity of agencies with no accountability. This also results in poor coordination and lack of administrative urgency in implementing reforms. No wonder our cargo dwell time is still in weeks as against hours in all successful trading nations. Also, our exporters and importers still have to get signatures from numerous agencies, which add immensely to transaction costs.
To set things right we need to create and announce in the Budget a National Trade Facilitation Council (NTFC) headed by the PM that should set a target for cargo dwell time in all ports and airports for exports and imports in hours, within a defined timeframe. The NTFC should break cargo dwell time down for each of the components - manifest filing, declaration, assessment, duty payment and examination - for all ports and airports. The time taken for each stage should be explained. A target should be set for the next semi-annual meeting, which should be monitored by the prime minister himself. The agencies responsible for not meeting the target should be held accountable and punished. Only then will cargo dwell time be sharply reduced. Similar targets should be set for administrative processing of trade documents by numerous agencies, leading ultimately to a couple of clearances.
Related to trade facilitation reforms, are other reforms that will make Indian industry better connected to Global Value Chains for rapid expansion of exports, FDI, and employment. These reforms are:
- The various freight corridors need to be made operational quickly. State governments need to be made stakeholders in the process of freight corridor development, not just in terms of infrastructure development, but also in terms of policy reforms. Crossing of state borders by trucks remains a cumbersome procedure mostly due to poor quality of inspection and poor procedures put in place by state governments who are responsible for the enforcement of a number of central acts and rules that freight movement in India is subject to. States need to become partners in the development of efficient corridors that link India's hinterland to key air and sea international gates.
- Improve Doing Business Indicators with focus on removing the massive transaction costs to allow a level playing field for job-creating MSMEs and help them attract FDI, since they are short of both investment funds and technological know-how.
- Diversify professional services beyond IT and ITES to labour-intensive accounting, engineering, architecture, design, product development, legal, and medical services.
- Promote skill development in labour-intensive services. The changing landscape of IT and ITES requires far greater emphasis on a diverse range of expertise and domain knowledge than mere programming that call centres ask for. The government and the private sector together would have to convert India's large output of natural science, arts, and commerce graduates into employable resources in the diversified professional services sector.
- Simplify the tariff structure, encourage easy import of inputs/intermediates, and reduce tariffs on them.
- A regulatory environment that is attractive to FDI in manufacturing with emphasis on national single windows, and timely decision making.
- A taxation system that ensures that no domestic taxes are exported (i.e. zero-rating of exports) and, most importantly, speedy introduction of GST, which eventually should lead to a low uniform duty across the country with minimal exemptions.
Implementing the bulk of these reforms should not generate much opposition in Parliament, but will go a long way in promoting rapid export expansion, a larger inflow of FDI, and job creation - all leading to a high, sustainable growth that is inclusive.
We just need the political will. Time is running out.
The writer was economic advisor in the Union commerce ministry