A K Bhattacharya: Just photo opportunities

RAISINA HILL

With the finance ministry phasing out export incentives and the RBI failing to control an appreciating rupee, the role of the annual foreign trade policy statements in stimulating exports is next to negligible.

Kamal Nath's first big step after he took charge as the Union commerce minister in May 2004 was to cut short the life of the five-year foreign trade policy that was originally expected to end by March 2007. On August 31, 2004, Nath unveiled a new five-year foreign trade policy aimed at doubling India's share in world merchandise exports by 2009.

The goal did not look that daunting when he unveiled that policy. In the previous two years, India's merchandise exports had notched up an annual growth rate of over 20 per cent. And after the introduction of his new policy, exports growth increased further to 31 per cent in 2004-05. The performance in 2005-06 was satisfactory, even though the exports growth rate had decelerated to 23 per cent. Proving all his detractors wrong, exports in the first half of 2006-07 continued to maintain a robust growth rate of over 36 per cent.

Since then, however, exports have met with some unexpected hurdles. The growth rate in the April-February 2006-07 period has tumbled to less than 20 per cent. Worse, exports growth in each of the months of December, January and February has been in the range of five to seven per cent. Kamal Nath's exports optimism has made a sudden retreat.

It is in this context that his supplement to the current foreign trade policy, expected to be announced on Thursday, acquires special significance. Ideally, foreign trade policies do not need to be announced or modified every year. Once the broad contours are outlined, necessary adjustments or modifications can be made through notifications as and when the commerce minister recognises the need for making such changes. Why there should be an annual supplement to the foreign trade policy is something Kamal Nath should ponder over.

Note that Nath has already done away with the ritual of presenting the annual supplement on the last working day of March every year. In 2006, he presented the policy supplement in the first week of April. This year also, the policy supplement was to have been announced around the same time. But unusual circumstances forced its postponement to April 19. The director general of foreign trade, B S   Meena, went on leave for about three weeks just before the policy supplement was to be announced. There was speculation over why Meena went on leave at a crucial juncture.

The good news now is that Meena is back at work and is giving finishing touches to the trade policy supplement. But the delay and the realisation that nothing much has been lost as a consequence once again underscores the need for fresh thinking on the relevance of continuing with the practice of announcing a trade policy supplement every year.

In any case, commerce ministers are increasingly losing the levers of control on foreign trade to two important institutions "" the finance ministry and the Reserve Bank of India. So, a foreign trade policy can have limited effect on the trade performance.

Take for instance the fact that the Indian rupee today has strengthened by about 2.5 per cent over March 2006. Since the bulk of India's exports are conducted in dollars and even after one accounts for the fact that the currencies of India's competitors have also strengthened against the dollar by a similar margin, the undeniable fact is that the foreign trade policy's effectiveness certainly gets blunted by the manner in which the currency valuations fluctuate in a year. On top of that, the finance ministry's attempt to phase out export subsidies undermine whatever efforts the commerce ministry might initiate to help exporters gain their market share in global trade.

The short point is that the commerce ministers of today should realise that the days of the government fixing export targets are gone. Nor is there any relevance of an annual show of unveiling a foreign trade policy. It is industry's job to set export targets and the government should create enabling conditions to help exporters achieve them. Annual photo opportunities to get media mileage can be sacrificed at the altar of effective policy changes round the year as and when any such need arises.