Govt may diversify trade basket in FTP

More pacts with China, African nations likely.

The government may announce specific policy thrust for more bilateral or multilateral trade agreements with China and African and east Asian countries in its ensuing foreign trade policy on August 27.

Sources familiar with the developments said there were numerous trade agreements even now in place with different countries. However, following cues from the current global crisis, it had become important to diversify the trade basket of the country both in terms of currencies and region so that crisis in one part does not affect the entire trade basket of India as is the case now, they added.

Currently, Europe and the United States have a predominance in Indian foreign trade, both in terms of region and currency. Therefore, the current global crisis which has its roots in these regions mostly, has greatly impacted Indian trade with falling export earnings.

It could be mentioned that India’s exports fell year-on-year by 27.7 per cent in June 2009 to $12.8 billion, its ninth monthly fall on a row, as recession in developed nations continue to slash demand for Indian goods.

Therefore, there is a need to focus on trades with other regions like east and south-east Asia and Africa. “Even if the trade is denominated in dollar, at least the quantum of trade in absolute terms will get hedged and one will have to deal with currency fluctuations, which is unavoidable in foreign trade,” said a source.

Further, the policy could outline fresh initiatives to be taken by the government for kick-starting talks with the World Trade Organization (WTO). Till now, the WTO talks concerning Indian’s foreign trade could not make much headway, said sources.

Similarly, the government is also contemplating to work out an umbrella trade body, which could replace all other trade bodies for negotiating trade matters. Currently, there are numerous trade bodies and even a single sector has multiple trade organisations, according to sources.

The commerce ministry is also in favour of extending additional interest subvention to banks for lending to exporters. This means banks will be urged to finance exporters at a lower cost and the loss could be made good by government funding. However, the Reserve Bank of India (RBI) strongly opposes it since the government borrowing is much above last year’s figures and the fiscal deficit is also a concern, sources said.

Sources said options other than interest subvention could be explored but did not elaborate on this.

RBI has already announced several relief measures for exporters, including interest subvention on export credit to banks, in its package s announced in November-December 2008.