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Exim policy 2000 does indeed mark a watershed, though not for the reasons
advanced by the Commerce Minister. It begins the one year stretch during
which India plans to dismantle all remaining quantitative restrictions
(QRs) on imports. The announcement declares what India has been forced
to accept because of US intransigence with regard to permitting India
to maintain some QRs for reasons of balance of payments vulnerability.
Restrictions on 714 of the 1429 items still subject to regulation have
been lifted as of April 1st, and those on the rest would go in a year
from that date.
It is indeed true, as the Minister stated, that this is a continuation
of the policy of dismantling QRs that has been characteristic of the
liberalisation years. But what he failed to mention is that adding on
another 1429 items to the free licensing list does not amount to a mere
quantitative change. It marks a qualitative shift because these items
remained regulated because they were among the most sensitive of imports,
for three reasons. First, they include items, transactions in which
affect the livelihood of the poorest of India's poor. From fishermen
to farmers to quarry workers and those engaged in poultry farming. Second,
they include commodities the production of which has been reserved for
the small scale sector on employment and distributive considerations.
Import liberalisation in these areas makes a mockery of reservation
policy, since units shielded from competition from production by bigger
units in the domestic tariff area are subjected to competition from
imports, independent of the source of such imports. Producers of leather
footwear and furnishing fabrics in the small scale sector are bound
to be affected adversely. Finally, the list of 1429 includes a number
of items for which there exists a pent-up demand among India's well-to-do,
the release of which in the wake of this round of liberalisation would
result not just in more conspicuous consumption, but consumption that
would be more profligate in the use of foreign exchange than has been
true hitherto.
The last of these features comes through from the fact that the Indian
consumer can, for example, now access, if she/he so chooses, carrots,
turnips, peas, pineapples, tamarind, watermelons and papaya from foreign
locations through large agribusiness chains. She/he can also savour
haddock, halibut, sole and plaice, even if at a price. The consumer
is being provided with a mindboggling choice of imported fruit, spices,
packaged food and office stationery. He can construct houses with imported
Italian marble floors and imported brick and plaster the walls with
imported wall paper. Last but not least he can have access to fully
assembled, imported brands of modcons such as refrigerators, cookers,
kitchen stoves, telephones, music systems and microwave ovens. In sum,
this phase of import liberalisation holds out the threat of displacing
domestic production and employment and of being wasteful in the use
of foreign exchange to a far greater extent.
It is indeed true, as government spokesmen and sections of the media
have been quick to point out, that protection is not provided by QRs
alone. Tariffs matter too. However, liberalisation has affected the
tariff regime as well. The peak rate of tariff on imports has declined
from 355 per cent in 1991 to 35 per cent (plus the 10 pr cent surcharge)
in this year's budget. The Reserve Bank of India estimates that the
average rate of tariff has fallen from 71 per cent in 1993-94 to 35
per cent in 1997-98. Furthermore, there are a number of agricultural
commodities in the list of 1429 for which the government had committed
to binding tariffs at nil or at extremely low levels. Though as a quid
pro quo for the removal of quantitative restrictions, these bindings
have been renegotiated to levels going up to 60 and 80 per cent, there
are a number of agricultural commodities, in whose case domestic producers
remain vulnerable to competition from imports. In a period when many
industries in the international market are burdened with overcapacity,
resulting in efforts at dumping, a 35 per cent tariff can prove inadequate.
And in those areas where tariffs have not merely been set, but bound
by commitment, at much lower levels, a moderately high peak or average
rate is no source for comfort.
There are, however, two major arguments that advocates of trade reform
can fall back on. First, that despite liberalisation, imports have not
been excessively buoyant in most years excepting two (1994-95 and 1995-96)
during the 1990s. And, second, that in the wake of liberalisation India's
balance of payments situation has improved considerably, with the trade
and current account deficits being under control and capital flows contributing
to a substantial buildup of reserves.
The first of these arguments needs to be treated with caution. The
1990s have been particularly volatile years as far as the unit price
of one category of India's bulk imports is concerned, namely petroleum
and petroleum products. As a result, as Chart 1 shows, the value of
oil (and products) imports, which was more or less stable between 1990-91
and 1994-95, nearly doubled over the next two years (1995-96 and 1996-97),
then fell sharply to close to its 1994-95 value during 1997-98 and 1998-99
and then rose by an almost equivalent amount in 1999-2000. These dramatic
changes, in the midst of an almost consistent increase in the quantum
of oil related imports, were the result of the sharp fluctuations in
oil prices in recent years. This implies that any assessment of the
impact of liberalisation on imports has to focus on trends in non-oil
imports.
Chart 1 >> |
