Suggestions of influential persons on trade policy and their scrutiny

“India needs to cultivate an overall narrative of trade optimism that goes beyond numbers”, say Abhishek Manu Singhvi, a well-known lawyer and Member of Parliament in Rajya Sabha who heads the Parliamentary Standing Committee on Commerce and Pradeep Mehta, a well known expert on international trade matters and the chief of CUTS (Consumer Unity and Trust Society) International, in an article that appeared on Friday in a leading financial daily.

The other suggestions of the authors include promotion of exports, control of non-essential imports and encouraging their domestic manufacture, production linked incentive (PLI) scheme for manufacturing marine containers, better dissemination of information regarding standards and certification requirements involved in Free Trade Agreements (FTA), intellectual property financing and leveraging, reviewing the recent moves to reduce export incentives, reducing logistics costs and so on. The high stature of the authors warrants a closer at the suggestions.

The government is keen on giving incentives for exports but is also keen on justification on the basis of export performance. The outgo on account of the Merchandise Exports from India Scheme (MEIS) introduced in April 2015 had gone up to around Rs 45,000 crores by 2019-20 but the merchandise exports didn’t go up at all from $314 billion during the 5 years period. After abolition of that incentive scheme in January 2021, the merchandise exports shot up to an estimated $450 billion within next 2 years. Similarly, the services exports also went up from about $206 billion in 2020-21 to about $320 billion by 2022-23, after abolition of the Services Exports from India Scheme (SEIS) in April 2020. So, it is very difficult to convince the Finance Ministry to promote exports through incentives. At present, the government’s preference is to link PLI partly with export performance.   

The authors say that the full effects of the government’s Gati Shakti programme has not yet translated to the ground in significant reduction of costs. Of course, it is too early to judge that. Still, there are views that the government is focusing more on road infrastructure than the rail infrastructure for movement of cargo. Also, that the railways is focusing more on rolling stock and passenger trains than on enhancing the track/network capacity and movement of cargo.

About 30 years back, DCM Hyundai and some other companies started making containers in India. They failed because the price of the essential raw material i.e. steel was too high. Since then the China has been the major supplier of containers. In the last two years, some well established businesses have shown interest in container manufacturing as the Container Corporation of India has decided to source the containers from them. Yet, the major shipping lines still prefer the cheaper containers from China.  It is doubtful if the PLI scheme will change that position very much.

The government has been trying to curb non-essential imports through higher tariffs and some non-tariff barriers. Experience has shown that such efforts only encourage lobbying and do not significantly help the economy. Since 2015 the government conducted several outreach programmes to help the trade understand the benefits of FTAs but that has not had much impact on imports or exports.

It is encouraging that influential persons give suggestions on trade related issues but their suggestions should stand up to stringent scrutiny.

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