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Trade winds

If India’s trade targets are to be realised, the government cannot rely on only providing incentives but must reduce transaction costs.

india Updated: Apr 13, 2008 23:37 IST

For all the fears that India’s exports have suffered due to a strong rupee, the latest foreign trade policy indicates that overall performance has not been all that bad. Labour-intensive sectors like textiles, handicraft and leather have, of course, been severely hit, while those with a higher import content like gems and jewellery have done better. Exports exceeded $ 155 billion in 2007-08 — slightly less than the target of $ 160 billion — and have grown faster than the average growth rate of international trade during the last four years. This growth, however, looks different when expressed in terms of rupees than US dollars. The sights have now been raised further to $ 200 billion for the current financial year.

The big question is what can foreign trade policy do to achieve such objectives. Issues like the rupee’s appreciation or rising inflation that erode the competitiveness of India’s exports are in any case out of the control of the Union Commerce Ministry. To offset their negative impact, the latest foreign trade policy seeks to compensate exporters through sops like a lower rate of interest in sectors affected by the rupee’s appreciation, reduced average export obligation under the export promotion capital goods scheme for sectors that have suffered a decline in exports during the last year and so on.

However, if India’s trade targets are to be realised, the government cannot rely on only providing incentives but must reduce transaction costs. Imagine a brave new regime in which the number of documents for exports is reduced from the current eight that take 18 days as against Singapore’s export regime requiring four documents that take five days! The average cost to export is $ 820 as against $ 416 in Singapore, according to the World Bank’s publication Doing Business. The waiting time for ships takes three-five days as against the norm of less than six hours. The upshot is that unless these costs are reduced, it will be difficult, if not impossible, to raise India’s profile in global trade.