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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 >> Click
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