New Delhi: Eight months into his job as commerce secretary, Rahul Khullar has had an eventful year. While the decline in exports has slowed, India has signed two free-trade agreements with the Association of Southeast Asian Nations (Asean) and South Korea in August. Khullar said in an interview that exporters who are doing well should be ready for a rollback of stimulus measures and that it is premature to review the special economic zone (SEZ) policy. Edited excerpts:
How far do you think we are from the pre-crisis level of export growth?
We are not going to get back to the 2008-09 level (of export growth) in 2009-10. We did exports of about $180 billion in 2008-09 and that notwithstanding the slowdown in the latter part (of the year). But my sense is we will never get to $180 billion (Rs8.37 trillion) this year. (We will reach) maybe around $165-170 billion (Rs7.67-7.91 trillion). (Export) numbers for the last three months have to come in...let’s see what happens. My guess is if January, February and March are good news, then by and large 2010-11 as a whole will be good news, subject to no major accident. You never know when a bank will fold up, some crisis will overtake. Everybody in Europe is now in panic about Greece, Spain and Portugal.
Soldiering on: The Uruguay Round took nine years, and the Doha Round of negotiations can still be completed, believes Rahul Khullar. Pradeep Gaur/Mint
Keeping aside whatever may be your budget allocation for the next fiscal, do you think this is the time when we should go for sector-specific stimulus measures for the export sectors?
Either way, whether my budget size is lower than last year or at the same level as last year, I have to prioritize. I cannot continue an across-the-board stimulus. So, if some sectors have got out of it, it is silly continuing to throw more money at them. Those which are out of the woods, I do not have much to say about.
The idea behind SEZs was that they will drive investment in the manufacturing sector and lead to export-led growth. That does not seem to have happened.
No, on the contrary, the first three quarters’ data on exports show that SEZ exports are up 40%, when the rest of my exports are 30% down. So do not jump the gun there.
But looking at the fact that developers are denotifying their zones and there is no fresh interest on that front.
No, that’s not fair. A number of people are still keep coming and still getting clearances, for biotech zones, infotech zones etc. Three things have happened in the last one and a half years. One, people have gone slow, which means if they had an SEZ plan, they are now doing it in phase 1, 2 and 3. Two, some have completely exited, which is the value of the land better put to some other purpose. Third, they are exiting not because they are unviable as a zone, but because the export content cannot materialize. I establish a steel mill. When export prices are very high, I expect to export all my steel. If steel prices crash and I have erected a steel mill, you tell me what am I going to do with it. So then I want to exit the SEZ. Those situations are very peculiar. Same with oil refineries.
So there is an inherent sustainability problem in the SEZ policy.
No, there is an inherent risk in certain highly focused sector-specific SEZs. Yes, there is. That is a commercial risk.
And most of the SEZs that have come up and that are doing well are the services sector ones.
No, manufacturing is also doing well. If you go to Nokia zone, it is doing extremely well. Apache is doing well, footwear is doing well, Mahindra City zone, textiles, lots of them are doing well. The real problem is (that) a large number of IT (information technology) zones, in fact, took permission but never established themselves. So, in numbers, the largest number of zones sanctioned were always IT and ITeS (IT-enabled services). And most of them have not come up.
So there is no question of reviewing the whole SEZ policy?
I think it would be premature to review it at this point of time. Let the recovery take place and by all means the data that is available to you is not telling you anything disastrously wrong. I am not at all inclined to believe that the SEZ story is over.
After the mini-ministerial of the World Trade Organisation in New Delhi, everybody thought talks would now fast-track on the Doha negotiations. What went wrong?
I think between September and December, we waited for the United States to appoint its officers, its ambassador, its chief agriculture negotiator and to engage. They did not. Part of it is a political problem because the health Bill was stuck in the legislative process. We are getting conflicting signals. On the one hand, the president (Barack Obama) said in the state of the union address: I want Doha done, I want to move to FTAs (free-trade agreements) with Colombia and Panama. India, China are not waiting for us and going ahead, I will not be second, etc, etc. So in a sense, the president is signalling “I want to do something”. But his negotiators have to translate that vision into negotiating positions. That they are not doing. And as long as they are not doing anything, we do not know what to do.
So now US is the acting as the stumbling block in the Doha negotiations?
That is your language.
You do not agree with that?
No, I do not want to use language like that. The point is that the US is not engaged. There will be serious difficulties if a major country and a major trading partner are not engaged in serious negotiations. The second problem is they seem to be asking everybody else to give more. The point of the matter is people will give you more if you will give more. They are not in a position to give anything. What sort of conversations can take place then. So in a sense, they are putting very onerous conditions upfront and saying agree to these before we move. That is not possible.
So in such a scenario, how feasible is the 2010 deadline?
Every passing day it is becoming more and more difficult. I have always been an optimist. I have always maintained that if you want it to be done, it will be done. The difficulty is: do you have the will? I think now all of us, call it negotiation-fatigue, are tired. We have been doing it for four years, beating our heads against the wall. Let’s get on. None of us is exactly thrilled that it is a wonderful deal. All of us will crib at the end—I didn’t get this, I didn’t get that.
There is one school of thought, mostly in the US, which thinks the Doha round should be scrapped because the talks have already taken eight years and the deal has lost its relevance.
No, that is not true. The Uruguay round took nine years to complete. It started in 1986 and concluded in 1995. I think Doha can still be done. Also, I suspect it will be a political disaster for America to say that we want the Doha round scrapped. They cannot do that.
As the multilateral trade liberalization under the WTO is not materializing, are fast-track bilateral trade negotiations such as free trade agreements (FTAs) the only option left to developing countries such as India?
That’s true. How long am I going to wait? I have competitive advantage, my economy is growing. My exporters say please open up markets for us. If others want to close down, that’s their problem, why should I worry. I will find markets. If it means closing a deal with SACU (South African Customs Union), I will close the deal with SACU. If it means Brazil, I will go to Brazil, Mercosur. If it means going to Europe, I will go to Brussels. I will not hold back on that, hoping some day in the future something will happen.
We have this huge trade deficit with China. How serious is this problem and what should be India’s strategy?
It is serious in the sense that we did use to have reasonably balanced trade with China till a few years back. Steadily, that gap has grown very very large. It is over $23 billion (Rs1.07 trillion) a year. That is huge. What we have told the Chinese is very simple. It is no longer possible for us to continue trading with such huge deficits and sit down doing nothing about it. There is a widely held perception among our exporters that people cannot get market access in China. Many of my fruits and vegetables do not have access, many of my industries do not have access. You can establish a shop in China, but we will not buy from you if you are based in India. Our position is until you ease on such barriers and the perception shifts, then we will take a chance with everybody else. And this is not merely an economic problem.
So what has been the response from China?
We have just given them a memorandum less than a month ago. Let’s give them three to six months and see how they respond.
But in the long term, you see China becoming a threat to the Indian economy?
Not a threat. I think there are two problems. One is that Chinese manufacturing is very competitive. In some sectors, they have produced top quality products at dirt cheap prices. But it is also true that they produce really very poor quality goods. We would like to import from them because they are competitive. But I cannot have a situation where trade flow is one way and not the other. I think they have got to make slightly more effort to make sure that Indian exporters get a fair deal. You cannot constantly keep complaining about India not giving you a fair deal.
Where do our FTA negotiations with the European Union stand?
Let the new commissioner take over the reins of the department. Then we will see how to proceed further. Currently, the problems in Europe are both political and economic. Recovery is very shaky.
So you are saying they are not ready for a deal at this point of time?
I am not saying they are not ready. I am not seeing the same passion to forge ahead. I would reserve judgment. Since the elections were held (for the European Parliament) and the commissioner has to change, there is a degree of uncertainty. It’s like when elections happen in India, the incumbent government does not do anything till a new government is formed. So let us give them time, a month, then I would be in a better position to say whether they really want to move forward. If they do not, you know what my reaction is going to be. We will close our shop and forge ahead.
So is it the political transition that is a problem or differences on the negotiating front?
I think by and large many of the difficult issues have been sorted out and they know what exactly India’s position is. So now it is a matter of only closing up and if you want to do it in six months, you can do it. That I am clear about.
But the non-tariff issues that they raise and the 90% plus liberalization that they are demanding…
Even those can be sorted out. I think what cannot be sorted out are issues such as labour and environment. Those we will never agree to. But short of that, we are ready to do business.
On the Asean FTA front, where do you see the gains actually coming from?
I hope to get more gains in services than that we have got on goods.
And is the August deadline feasible to close the deal?
I am keeping my fingers crossed. I am sending out a team, I have spoken to my minister. I am hoping to do it very quickly.