The challenge now is to pursue further liberalisation

Exactly 20 years back, on July 4, 1991, P Chidambaram, the then commerce minister, flagged off trade reforms following a two-stage devaluation of the Indian rupee. He abolished the direct export subsidy (cash compensatory support) and numerous restrictions on imports and exports to substantially liberate the trade from ‘Licensing Raj’.

Till then, the Import and Export Policy restricted everything unless specifically allowed. With a stroke of the pen, Chidambaram changed the Policy to say that everything will be allowed unless specifically restricted. He abolished supplementary licences, capital goods licences, stock and sale licences, REP licences, additional licences and so on, and introduced Exim Scrips for exporters that could be sold and used for import of a host of items or even for remittance of royalty.

Next Year, Chidambaram brought in the new Foreign Trade (Development and Regulation) Act, 1992, and abolished Exim Scrips in the wake of partial convertibility of the rupee that meant a dual exchange rate — one for exports and the other for imports. Considering the need to quickly boost exports to earn the much-needed foreign exchange, he introduced the Value Based Advance Licence (VABAL) Scheme. After leaving the ministry for a few years, he returned later to introduce the Passbook Scheme in 1995. The VABAL and Passbook schemes gave way to the Duty Entitlement Passbook (DEPB) scheme in 1997.

In 1996, the Central Board of Excise and Customs introduced a self-removal scheme for Export Oriented Units (EOUs), simplified the procedures for availing the benefits of end-use-based exemption notifications and made it easier to establish Inland Container Depots. In the first decade of this century, quantitative restrictions were abolished substantially and the Special Economic Zone (SEZ) scheme was introduced. Some value-based incentive schemes for status holders, schemes to promote exports of employment-intensive and farm products and to facilitate diversification of markets were also introduced, with a view to boost exports.

While such Policy changes have helped grow imports and exports, the future seems to hold immense possibilities. Recently, Kaushik Basu, chief economic advisor in the finance ministry, told the Economic Policy Council of Confederation of Indian industry that the Indian economy might be experiencing a changing structure, with growth in the future becoming more export oriented. With more opportunities opening up in global markets, the challenge in the current decade is to pursue further liberalisation through better calibration of Customs duties, through multilateral, regional and bilateral trade deals and further simplification of the export promotion schemes with a view to reduce the transaction costs.

So, Commerce Minister Anand Sharma needs to draw suitable inspiration from the way Manmohan Singh and Chidambaram went about liberating the trade from bureaucratic shackles. He needs to ask whether the EOU and SEZ schemes need to continue. He should confer with the finance ministry to see if duty on capital goods can be reduced to, say 5 per cent, with simultaneous abolition of Project Import Regulations, Export Promotion Capital Goods scheme and other exemptions for capital goods. He needs to examine whether he can use technology better to eliminate intervention of bureaucracy in the delivery of benefits under various export promotion schemes. In doing so, he should avoid any consideration for preserving the various licensing offices of the Director General of Foreign Trade.

Email : tncr@sify.com