Commerce Minister Anand Sharma is obviously aware of India’s serious external payments situation, centred on the persistently high merchandise trade deficit. Last year, exports contracted marginally to just over $300 billion compared to the previous year’s $306 billion. With imports growing to $491.48 billion, the trade deficit at nearly $192 billion is almost two-thirds of export receipts. Far from being a temporary aberration, which will be substantially corrected by a continuing fall in gold and oil prices or by the slightly improving trend seen in exports over the past three months, the trade deficit ought to be seen as a major macroeconomic shortcoming, requiring all round policy intervention. From that standpoint, the Annual Supplement to the Foreign Trade Policy, released last week, is a disappointment, featuring more of the same incremental, largely procedural measures as in previous years. The zero-duty Export Promotion Capital Goods scheme, which allows for duty-free imports of capital goods subject to fulfilment of export obligations, has not only been extended beyond March 31, 2013, but its benefits can now be availed across all sectors. A positive feature has been the attempt to make most concessions universally applicable. Exporters would be entitled to additional 2 per cent tradable duty free scrip that can be used against payment of customs and excise duties on whatever incremental shipments they make over last year. These and other measures are not unwelcome. Specific sectors such as textiles, gems and jewellery stand to benefit. But this is not enough.
By all accounts the external situation is expected to remain grim in the coming months. The World Trade Organisation says that global trade will remain sluggish with the eurozone countries struggling to recover. Even the incipient recovery in the U.S. might still flounder over issues of fiscal consolidation. All this is not good news for India, which despite a conscious policy of diversifying its export markets, is still largely dependent on western markets. It is possible that the FTP, both in its design and substance, is not the best way to deal with the external situation. The Commerce Ministry for all its intentions can at best be a facilitator of policy measures decided by other, more powerful ministries, notably the Finance Ministry. The two pressing hurdles to a superior export performance — high transaction costs and the shortage of physical infrastructure — need to be tackled by the government as a whole. Finally, there ought to be a recognition that some of India’s competitive strengths, such as in telecom, and internet based export-import procedures, are losing their edge and require new innovative approaches.