If it ain't broke ...

Commerce and Industry Minister Kamal Nath unveiled the annual supplement to the five-year foreign trade policy yesterday. For several years now, the prevalent view on this annual exercise has been that it is largely a formality. There is relatively little left within the ministry's control that has any significant bearing on export performance. The major barriers that still remain are entirely within the domain of other ministries""the several infrastructure areas and labour, to name a few. While Mr Nath can jawbone his colleagues to initiate steps to deal with these barriers, his power to get things moving is obviously rather limited. Given his lack of elbow room, then, the best he can do is to ensure that the strong momentum that exports have built up during his tenure in office remains undisturbed. Whether his actions have anything to do with this performance at all is a separate question; he would have been blamed for a slump, so he rightfully deserves some credit for the acceleration.

And, acceleration it has been. The country's merchandise exports were $125 billion during 2006-07, almost double the level they were when he became minister. They have grown at a compound annual rate of over 25 per cent during his tenure, double the rate of the previous three years. For the country as a whole, this is no mean achievement. A favourable global environment no doubt was a significant contributor, but even then, this growth would have been unlikely in the absence of streamlining and facilitation done by the ministry. So, Mr Nath can claim his pat on the back. But, what next? Obviously, more of the same, and the minister has largely obliged. There are some sector-specific initiatives relating to the usual suspects""agricultural products, handicrafts, and gems and jewellery, combining some fiscal concessions and marketing support. There is a general promise for streamlining procedures and reducing transaction costs, which is always welcome.

With the formalities out of the way, however, there are a couple of issues raised in Mr Nath's speech that could provoke some controversy. He has laid out a plan to exempt services delivered to exporters from service tax. While this may be consistent with a holistic view of exempting exports from domestic taxes, its revenue implications need to be worked out and the finance ministry will obviously have a say in whether this can go through as announced by Mr Nath. On the issue of special economic zones (SEZs), which Mr Nath has fervently championed in the ongoing debate, he reiterates his support and enthusiasm for the programme, even as his colleagues in the government are looking for ways to deflect the political reactions to land acquisition and other aspects of this controversial policy. His expectations of export growth and the employment it will generate as a result of the implementation of the policy must be tempered by the difficulties faced by developers, particularly of the very large zones, which are being designed to host multiple manufacturing sectors.

Finally, in an interview to this newspaper after his speech, Mr Nath expressed confidence that the rupee would reverse course and depreciate. As if it wasn't enough of a challenge to bring his obstinate ministerial colleagues on board; he now faces the additional challenge of co-opting the Reserve Bank of India into his strategy!