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BRING DOWN THE BARRIERS
Venture out

The new commerce minister, Arun Jaitley, has announced his first export and import policy 2003-04 on March 31. One may recall that one year back a five-year medium-term exim policy was announced by his predecessor, Murasoli Maran. So the new one-year policy has to be viewed as an amendment or extension to the earlier five-year policy.

The basic goal set up by the commerce ministers is to secure a 1 per cent share of global exports by the year 2007 as against the current share of 0.67 per cent. This would need a 12 per cent average annual export growth over the next four years. Last year’s export growth rate of 16.76 per cent in dollar terms took place despite a global slowdown. So one may regard the target achievable, provided the major constraints on exports can be relaxed. What are these constraints'

The most important problem limiting exports in the pre-1991 era was that exporting was a much less profitable activity relative to sales in the highly protected domestic market. The profitability problem of exports has been largely overcome by the steady depreciation of the rupee since 1991. An exporter who could get Rs 15 for $1 worth of exports in the early Nineties is now getting Rs 48. It has resulted in substantial increases in the rupee realization of exporters in real terms, even after allowing for the inflation rate in the intervening period.

This is particularly so for agri-exports whose import content is relatively low. In such cases, the rupee depreciation has resulted in a large rise in the export price in rupee terms without causing a corresponding rise in the rupee import cost of inputs. For agri-products, the major constraint has been the difficulty of securing exportable surplus without causing a rise in domestic prices. The primary need, therefore, is to increase productivity in exportable agricultural products.

The bio-tech revolution and the arrival of genetically engineered crops have opened up a world of opportunities. Even without that, there is a tremendous scope for increasing yield in many agri-products by using better varieties of seeds, scientific farm management practices like rotation of crops, proper irrigation, timely use of right types of fertilizers and pesticides. For example, though India is the largest producer of pulses in the world, it ranks 115th in terms of productivity. Then we have the problem of huge physical wastage on the farm and value loss due to antiquated storage, handling, grading, packaging, transportation facilities and the trading margins of a large number of intermediaries (unlike developed countries). According to a McKinsey study, all these losses amount to nearly 50 per cent of the total value of Indian production of fruits and vegetables.

Other major problems in agriculture and allied areas (including floriculture, horticulture, ayurvedic plants, fisheries, dairy) have been poor infrastructure and inadequate access to global marketing channels. For example, the price of a cut rose gets halved in Amsterdam if it is more than 24 hours old. Availing such opportunities would require refrigerated vans right from the garden to the airport, good quality roads for quick transportation, speedy handling of export cargo at the airport and hassle-free documentation and inspection formalities by customs officials. In addition, the exporter may need to tie up with some multinational company which has established marketing networks in Europe and elsewhere. So, even if India has the advantage of possessing a variety of climatic zones so that roses can grow throughout the year in some part of India or the other, we cannot make use of our unique advantages because of other constraints. Producing products to international health and hygienic standards is an additional problem for fishery and dairy products.

Producers can get a much better price if they can sell their products under their own brand names. For example, if the high quality coffee grown in the Coorg area in Karnataka can be marketed abroad under a distinctive brand such as “Coorg”, the growers of Coorg coffee would be able to get a much better price. But developing such brands require considerable money and efforts which small or even medium producers cannot afford.

Here producer cooperatives or private companies can play an important role. I am deliberately leaving out government departments. The motivation, training, expertise and the transferable nature of their jobs do not particularly equip Indian administrative service officers for these roles.

Under existing land laws, a company cannot own large tracts of land. But a private company can lease in land from small landholders or develop a network with specialized growers. In the networking model, the corporation will conduct research and development and will extend that knowledge, along with providing seeds, implements, fertilizers, pesticides, credit, insurance and marketing services, to its network of firms. One hopeful sign is that some big industrial houses in India have made a beginning along these lines by providing farm-specific total agri-solutions, comprising mostly of elements mentioned above. The new exim policy has also recognized that the bankrupt state governments do not have the resources and it is essential to involve the private sector in developing the infrastructure and other facilities in the proposed agri-export zones.

Apart from agri-products, the exim policy has rightly recognized the potential of exports of services, especially in health, entertainment and tourism. The major sops offered here are duty free import of consumables, spares, office and professional equipment against export earnings. Perhaps the most important constraint in developing exports from our film industry has been shortage of funds, apart from the influence of mafias and dons. The primary need here is to develop genuine venture capital funds for these sectors. Given the inherent risks, standard bank finance will not generally be available. Piracy of films and music is another major obstacle which needs to be tackled by strict enforcement of laws.

The flow of foreign tourists suffers due to the slow and erratic transportation system, poor connectivity, law and order problems and shortage of safe and reliable hotels for budget travellers in places of foreign tourist interest such as Bodh Gaya. Treatment of patients and old age care at relatively low cost offer tremendous scope for foreign exchange earnings by the health care industry in India, specially if such clinics can be developed in scenic places. Though the professional expertise of our doctors is recognized in many parts of the world, the same cannot be said about the quality of nursing care and administration in our hospitals. These have to be improved very substantially. The issue of insurance cover for medical treatment of foreigners in Indian hospitals needs to be addressed. Allowing inflow of foreign capital and administrative expertise in these areas may help resolve some of these issues more easily.

To set up special economic zones a la China is a long-term initiative emphasized in the exim policy. Though the idea of allowing overseas banking units in such SEZs to provide finance at internationally competitive rates was mooted a year back, precisely little has been achieved so far. Delay in land acquisition has been said to be the reason behind the slow progress in setting up the new SEZs. It is true that the required infrastructure can be developed more easily in some designated places than all over the country.

But one point needs to be recognized very clearly. The early success of Chinese SEZs was mainly due to the practice of “raw capitalism” in those areas. The managers in SEZs were given unhindered hiring and firing rights. The workers, mostly female workers coming from the countryside, had no job security nor did they receive any social security benefits. This kept the labour cost in SEZs artificially low, relative to other areas in China. It is highly doubtful whether enforcing two different sets of labour legislation in SEZs and other areas is feasible in a parliamentary democratic system like India. If so, then we should not expect to get anything dramatic out of SEZs.

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