A formidable agenda

Ministry of Commerce and Industry needs an urgent reboot

Few ministries in the Union government have a more full agenda, greater responsibility and a longer list of pending reforms than the commerce and industry ministry. The ministry, which is responsible for India’s trade policy, exports and domestic industrial policy, has not seen stellar results of late. Merchandise exports from India fell by a startling 15.6 per cent in 2015-16, and performance since then has been weak. This is at a time when global growth and demand are recovering and competing countries such as Bangladesh and Vietnam are demonstrating strong export performance. Meanwhile, industrial output has also been weak. In the first quarter of the current financial year, data for which was released last week, gross value added in manufacturing grew by only 1.2 per cent, year-on-year. While foreign investment flows have been strong, overall investment as measured by gross fixed capital formation has been consistently disappointing. The strong foreign flows have themselves led to trouble, with the strong rupee causing exporters to lose markets. The new minister, Suresh Prabhu, has a tough job ahead of him. 

Not all these problems can directly be tackled by the commerce minister alone. Other stakeholders will have to be convinced or brought on board, such as the ports and shipping ministry, the finance ministry and the Reserve Bank of India (RBI). Are the strong foreign debt flows that India is receiving truly worth it if they destroy exporters’ competitiveness? Is the RBI’s limit on foreigners’ purchases of domestic debt too high? Exports will need a whole-of-government effort to take off. Perhaps the government should consider a group of ministers or a Cabinet committee to deal with the problems expeditiously. Certainly, to the extent that exporters are hampered by difficult Customs procedures, those must be addressed; if the finance ministry is unwilling to act, the commerce minister must lobby the prime minister’s office to intervene, and ensure that paperwork is reduced and processes are simplified. 

Reinvigorating manufacturing — the goal of ‘Make in India’ — is a similarly daunting task. Too little has been done at the central level to simplify procedures. Here again, other ministries will have to be lobbied and pushed. The labour ministry, also now under new management, must be made to work harder on its simplified labour law codes, and the scope of these codes must be widened to include the relaxation of various stringent requirements that keep Indian companies small and inefficient. The calls on Mr Prabhu’s diplomacy will be great, but the rewards for the Indian economy will be even greater. The goal must be to increase competitiveness and thereby aid the localisation and indigenisation of supply chains so that domestic demand is satisfied domestically through the working of the market. 

The one thing that Mr Prabhu as commerce minister will unquestionably control is India’s policy towards various regional trade blocs and free trade agreements. It is unfortunate that under his predecessor India tended to go very slow on setting up new trade agreements. The opening up of new markets for Indian companies and exports must be given greater importance than the demands of various protectionist lobbies.