It was exactly 25 years before when then Commerce Minister P Chidambaram began trade reforms with many far-reaching announcements. Since then, the foreign trade policy has moved in the direction set by him, with less dramatic changes every now and then.
On July 4, 1991, Chidambaram abolished cash assistance for exporters and several categories of licences. Till then, most items were not allowed for import without a licence. Chidambaram turned that policy on its head by allowing import of all goods without a licence, except those specifically restricted. Within a year, he had introduced a new Foreign Trade (Development & Regulation) Act and put in place a simpler five-year export and import policy.
Chidambaram retained the schemes for free trade zones, export-oriented units, deemed exports, duty-free import of inputs for export production and import of capital goods at lower duties against export obligation. These still continue, with improvements but in substantially the same form.
Before 1992, large companies took almost no interest in exports, as they had enough of protected domestic markets to exploit. The new value-based advance licence scheme and later the duty entitlement passbook scheme and zero duty export promotion capital goods scheme gave them enough incentives to explore export markets. Global markets also started opening, with the rule-based trading system of the World Trade Organization (WTO). Even so, exports grew slowly, from about $18 billion in 1991 to $33 bn in 1997 and $44 bn in 2002.
Chidambaram came back as finance minister in 2004, when Kamal Nath, as commerce minister, pushed for diversification of exports through the Focus Market Scheme and encouraged export of farm products, handicrafts and employment-intensive products through the Vishesh Krishi Gram Udyog Yogana scheme and Focus Product Scheme. He also rewarded services exports through the Served from India Scheme. New laws for Special Economic Zones were introduced in 2006. From 2003 to 2014, one scheme or the other incentivised incremental exports. So, despite global economic slowdown from 2008 onwards, exports soared from about $63 bn in 2004 to $185 bn by 2009 and $314 bn in 2014, before falling off to $262 bn in 2015-16.
When India became a WTO member in 1995, the opposition criticised the move as a sell-out by the government in power. However, subsequent governments have continued with the WTO membership. Murasoli Maran, commerce minister in the Vajpayee government called it a necessary evil but went on to sign the Doha Development Agenda of WTO in 2001. Many bilateral agreements have also come into effect, regardless of who is in power.
Meanwhile, the Directorate General of Foreign Trade (DGFT) started accepting applications for licences online. Later, the DGFT website was linked with the Customs EDI system and banks were made to upload data regarding realisation of export proceeds. Last year, exporters were asked to upload their documents and certificates and this year, the Customs single-window project was launched, enabling exporters to file their documents electronically and get all the requisite permissions from the government agencies online.
The task ahead is to eliminate the entrenched vested interests for whose benefit many regulations have been made. That would be a decisive test for the present government.
E-mail: tncrajagopalan@gmail.com
