Editorial: Obsolete approach

Over the years, the ministry of commerce and industry has developed a somewhat schizophrenic identity. On the one hand, it has taken on the role of representing India in global and regional trade negotiations, a critical function in today's integrated economic environment. Playing this role effectively will have a significant impact on India's long-term economic performance. On the other, its activities and rituals are an anachronistic throwback to the pre-1991 era, when the country was perpetually short of foreign exchange and every little bit earned by exports was invaluable, no matter what the domestic cost was. One such ritual is the annual announcement of the export-import policy, this year's edition of which was announced on Friday. Over the years, the discretionary powers of the ministry to influence export performance have been rendered almost negligible. Commitments to the World Trade Organisation and other trade agreements on tariff rates and trade promotion measures are one reason for this. The other, equally significant, reason is that many of the barriers to competitiveness that Indian exporters face lie in the domain of other ministries, over which the ministry of commerce and industry has demonstrated no discernible power "" the usual suspects here are power, transport and labour. The annual announcement has, thus, truly become a non-event.

However, the circumstances leading to this year's ritual were a little unusual and perhaps warranted a considered response by the ministry. While the rupee has stabilised somewhat after its sharp surge last year, the experience has left exporters across sectors shaken, particularly the smaller producers. Finding ways to help exporters deal with a new exchange rate environment could well have been considered a priority by the ministry. Even if it does not have control over the various instruments available, it could have drawn up a plan to work together with the relevant agencies to achieve this objective. The other issue that has arisen more recently is the inflationary pressure that the economy is facing and the need to rapidly augment the domestic availability of several products for which international prices are extremely attractive and domestic producers are tempted to export. Export restrictions have already been imposed on some commodities by the government, but streamlining them by establishing some criteria for triggering these curbs and dealing with the challenges of administering them would naturally fall into the domain of the ministry.

Friday's announcement did not directly address the critical issue of the exchange rate, which is not so much protecting exporters from exchange rate risk as helping them deal with it. It did address the issue of expanding domestic availability by terminating export incentives for products such as steel and cement. As long as producers are rendered indifferent between exports and domestic sales, something will have been achieved. The schizophrenia was manifest in a lot of tinkering and the grand announcement of an unrealistic export target for the year, with a projected growth rate of nearly 30 per cent "" which India has not achieved in many years when the world trading and economic environment was more congenial. Notwithstanding these, the most important aspect of the policy announcement was its emphasis on streamlining procedures, with the focus being on lowering transactions costs. This is an entirely laudable objective and one consistent with the ministry's domain, but do exporters have to wait for an annual announcement on this? It should be an automatic and ongoing process, dealing with anomalies and bottlenecks as soon as they are recognised.