When unveiled in 2004, India’s foreign trade policy (FTP) was seen as a major shift in the government’s thinking on the conduct of external trade. It appeared then that the government had recognized that India’s global integration had necessitated a shift in the focus of policymaking away from the narrow confines of export-import management, which essentially had been the focus of trade policy in the past.
Given this backdrop, two sets of issues had to be addressed. In the first place, the administrative and other bottlenecks faced in transacting business had to be removed. The second, and perhaps more difficult, was to provide the wherewithal to improve domestic stakeholders’ preparedness to meet the challenges posed by global markets, which could then be used to increase India’s share of global trade. FTP 2004 had spoken of doubling the country’s share of global merchandise trade in five years.
However, five years hence, many of the expectations from the FTP remain unrealized, essentially because the policy has not been able to put in place the mechanisms that can address the problems faced by Indian businesses in improving their global presence. The key problem is that in the context of Indian policymaking, the FTP remains an “outlier”; in other words, it has not really been able to work in sync with the key administrative ministries (the so-called “line ministries”) and the state governments to develop strategies for trade expansion.
This disconnect between different arms of governance is clearly evidenced by the fact that the cost of doing business in India is among the highest in the world. As various agencies, including the World Bank, have constantly reminded us, administrative bottlenecks and other domestic inefficiencies have not been given due attention, increasing the cost of doing business.
There is no gainsaying the fact that policymakers have to focus their attention on reducing transaction costs if India is to improve its presence in the global marketplace. The FTP needs to make an assessment as to how these costs are to be progressively reduced in coordination with administrative ministries. While some of the problem areas, such as procedural inefficiencies, can be fixed in the short run, others such as infrastructural deficiencies can only be addressed through a medium-term strategy.
The importance of the former set of problems must be particularly emphasized in the context of the current downturn in the global economy. As major economies start to pull themselves out of the downturn, there would be a rush to capture whatever market access possibilities they offer. In this situation, India would have to remain mindful of the fact that it can steal a march over its competitors merely by removing procedural inefficiencies.
Possibly the most meaningful contribution of the FTP would be to develop coordinated strategies to address the problem of non-tariff barriers (NTBs) that could potentially affect Indian interests. Government and industry seem to be yet unmindful of the fact that the tariff regime is passé and that NTBs are the flavour of the times. In recent years, NTBs have been proliferating at a rapid rate, evidence of which is available from the notifications that World Trade Organization (WTO) members are issuing to announce the imposition of Technical Barriers to Trade (TBT) and Sanitary and Phytosanitary (SPS) measures or food safety standards.
In 2008, WTO members issued at least 1,550 notifications announcing technical barriers—almost four times larger than the number in 1995. But perhaps, the more important fact is that since 2000, “advanced developing countries” have been the more frequent users of NTBs. It should be noted in this context that members of the Association of Southeast Asian Nations (Asean), with which India recently signed a free trade agreement, have also been liberally using these market entry barriers.
But while the TBT and SPS measures would affect India’s future prospects, the measures that the European Union members and the US are proposing to compel advanced developing countries such as India to accept emission reduction measures could severely affect present trade volumes.
These are quite formidable challenges that India would have to cope with if it has to maintain its place in the global market. At this juncture, the country lacks an integrated system through which issues relating to NTBs can be tackled and this lacuna needs to be addressed by the FTP.
This mechanism, which needs to be established in a public-private partnership mode, should have two components. In the first place, there must be a mechanism to obtain information about the NTBs that are being imposed by India’s trade partners. And, secondly, a consortium of agencies, including the administrative ministries, should help develop strategies to address challenges posed by these NTBs.
Biswajit Dhar is a trade expert and the director general of Research and Information System for Developing Countries.
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