Mar 12, 2013

Annual supplement to Foreign Trade Policy - Input gathering

Post Budget, every year, ministry of commerce/DGFT brings out a supplement to the existing Foreign Trade Policy (FTP). Depending on the circumstances, policy is fine-tuned to maximize exports, within given fiscal constraints. It's a typical optimization problem with the boundaries being set by the Budgetary allocations. Consultations between industries, traders, export promotion bodies, regional authorities of DGFT offices and other stake-holders are continuously on for this process. This year, commerce department has gone one step ahead by sending representatives across the country, to gather inputs from the stakeholders, for policymaking.  

The blogger had an opportunity to participate (passively) in one such meet in Chennai, where a senior official from Commerce department came to gather the inputs. FIEO with the local DGFT officials, had organized the meet with exporters and industries. The venue was Le-Meridian and the lunch was good. 

The inputs by most of the export promotion councils, industry representatives, and exporters were utterly forgettable. All they came up with, was a one percent extra incentive here, a two percent interest subvention there, and this dole and that favor. One industry representative went on and on about the power problems in TamilNadu and how his industry is getting affected. I was aghast to listen to the export promotion bodies, who too wanted more doles, without giving any justification/ideas (FIEO was the only exception). 

The problem with such inputs to policy-makers is that it's not easily actionable. The doles have been already optimized to match the fiscal constraints. Unless the purse expands, such inputs are useless. Infrastructure issues such as ports, power, roads are indeed important, but cannot be addressed by short-term policy supplements. What was needed was some out of the box suggestions. Nothing came. I believe that the money spent on incentives can be better used for creating the markets, by efforts such as advertisements, buyer-seller meets, buying stalls in international exhibitions, working to protect our trade interests in international forums and so on. Except a rare voice, such inputs were totally missing in the meet. The root cause of declining exports starts with economics woes of the world. Demand slump is the prime cause. There was hardly any suggestion that talked about development of new markets or efforts to make our products accessible to existing markets. 

Trade policy can address only few issues. It remains narrow in scope unless it is integrated to the higher level of national macroeconomic planning. Infrastructure is single most trade enabler and trade policy, in the shape it stands in India today, can hardly address this issue. You can read my rant about ASIDE, which is one such infrastructure scheme run by FTP. Also, FTP of India, for some weird reasons, covers only merchandise trade. Services, as an animal, is unknown to it, except for a touch and go here and there. The understanding on services is simple. We don't know much about it, so let's not talk about it. Let's eat lunch. It's beyond the mandate, if someone asks. 

Anyway, I still liked the fact that these consultations are happening. It's better to take the inputs before embarking on policy-making. I wish to see some more measures to expand the markets, measures to create demand for our products, and measures to diversify our export products, measures to protect our interests, and measures to ensure better utilization of existing funds and so on in this supplement. 

The blogger will publish a review of FTP supplement as usual, once it is out. 

Mar 11, 2013

India's Foreign Trade report : Feb 2013

Merchandise exports for the month of Feb 2013 finally showed an upward trend in both dollar and rupee terms. After a long time, we are seeing a turnaround, where the exports are growing. The PIB report, released today, says this:

"Exports during February, 2013 were valued at US $ 26259.36 million (Rs. 141206.31 crore) which was 4.23 per cent higher in Dollar terms (13.99 per cent higher in Rupee terms) than the level of US $ 25194.42 million (Rs. 123873.66 crore) during February, 2012. Cumulative value of exports for the period April-February 2012 -13 was US $ 265946.37  million (Rs 1446626.70 crore) as against US $ 277124.56 million (Rs 1320835.99 crore) registering a  negative growth of 4.03 per cent in Dollar terms and growth of 9.52 per cent in Rupee terms over the same period last year."

And for a change, imports have not grown faster than exports. They grew at a rate of around 2.65%, which is lesser than the 4.2% growth in exports as said above. This is just a monthly data, but a heartening one, as it indicates that the deficit would have grown smaller. 
However, the overall deficit till now, for the year, is not very encouraging. The year has been bad. The deficit has widened to around 182 billion USD, against around 169 billion USD for April-Feb period last year. 

I am predicting that we would end the year with a merchandise trade deficit of around 200 billion USD. This is a 'huge' sum to have as deficit, if you are not US of A. Thanks to the flows through services and capital account, we are somehow sustaining, but there is a need to take a hard look at what could be done about this. 

That brings me to the discussions on Foreign Trade Policy supplement, which is due within next couple of weeks (around a month after Budget). And that would be the topic of my next post tomorrow. 

Mar 5, 2013

ASIDE scheme - Evaluation perspectives

ASIDE is an infrastructural development scheme run by Department of Commerce. It funds state governments to develop infrastructure that would assist in exports. The stated objective reads:

The objective of the scheme is to involve the states in the export effort by providing assistance to the State Governments for creating appropriate infrastructure for the development and growth of exports.

The criteria for approval of projects under this scheme reads:

The proposals must show a direct linkage with the exports. The proposed investments should also not duplicate the efforts of any existing organization in the same field.

We are talking about infrastructure development that would have 'direct' linkage to exports. You can read the scheme in greater detail here. The central government bears a financial burden of 80 to 90% and the rest is borne by respective state governments. 
Over the last few years, a grand total of around 400 to 500 crores are being spent annually on this scheme. You can read the details of state-wise expenditure here

Now comes the problem area. Read the performance measure below:

The export performance and growth of exports from the State / UT will be assessed on the basis of the information available from the office of the Director General of Commercial Intelligence & Statistics (DGCIS). The office of the DGCIS will compile the State-wise data of exports from the Shipping Bills submitted by the exporter. The Shipping Bill form provides a column in which the exporter will enter the name of the State/UT from where the export goods have originated. Filling up of this column is mandatory with effect from 15.6.2001 under the FT(D&R) Act.

Sir, really? Do we have state level data for exports from shipping bills? Customs department never minds what the CHA/Exporter fills up in this particular column of shipping bill.  Most of the times, they fill the name of state of the port from where the exports are taking place. If good originates from Bangalore, it's likely to be shipped from Chennai, and there is no check on this column if the exporters randomly fills Tamilnadu as state of origin. I have seen many shipping bills where this column is wrongly filled. No one minds. And trust me, it's good. If they mind, and ask the exporter to show the origin documents, it would add another headache for the exporter.
Then there is the question of intermediate goods. The components might come for an automobile from different states, and the assembled car might be exported from one particular state. How do you account for that?
Then again there is the question of value add. Does gross measure justify the export performance?

And who is competent to do an evaluation on this scheme? What should be the methodology. The problem of all this struck me when I saw two totally divergent views on the same scheme. One (obviously pessimistic) was by CAG, and the other by IL&FS (obviously optimistic). The CAG report can be accessed here. IT's a little oldish report, but very relevant due to the perspective it offers. Two most important points from CAG report are:

  • A significant number of projects, primarily in the State Sector, involving ASIDE funding of Rs. 177.59 crore were either ineligible or had no direct linkage with exports.
  • Due to lack of capture of data regarding the States from which the exports actually originated (rather than the States from which the products were finally shipped out), ad hoc allocations were being made to States and not on the basis of the specified criteria. This resulted in allocation of ASIDE funds to the States where purchasing entities were located rather than to States which were producing the export items.

The IL&FS report is not openly accessible, but the statement by the Hon'ble minister of state, in the Parliament yesterday, about this study says :

An independent study by IL&FS of the working of the Scheme revealed that there is strong relationship between increase in allocation to States by the Government under ASIDE Scheme, and the subsequent increase in exports of the States. There has been an upswing in the exports from such the states which have received assistance under ASIDE. State-wise data on exports is not accurately recorded so far by DGCI&S due to technical reasons. 166 Export Processing Zones have been operational.

The truth lies, I hope, somewhere in between. IL&FS has vested interest in this scheme and to call it "independent study" is a joke. And the joke says that there is a strong relationship, whereas CAG denies it altogether. 

It's nice to have lofty goals when making policies, but to pin down and measure policy effects is a challenge in itself. I will elaborate my thoughts on this in coming posts.