May 30, 2013

Trade facilitation through documentary simplification

When it comes to international merchandise trade from India, documentary requirements come up as the biggest hurdle. In fact, documentary hassles contribute more than the inland transportation and handling costs, as can be seen from the plots below. (Source: Doing Business report 2013 by World Bank, data plotted in excel by your blogger)


Documentation takes a time of 8 days out of 16 days required to export an average container out of the country. 



In case of imports, it takes 8 days for documentary preparation out of a total of 20 days required to import a container into the country once it lands at the port.







The last major revolution in decrease in transaction time/costs happened between 2007 and 2008 when Indian customs department introduced the EDI system (ICEGATE) for clearance of goods.

The corresponding costs associated reflect the same trend. Documentation costs are very high when compared to best practices across the world. However, we are doing better than most of our south asian peers, but that shouldn't be our standards to follow. 
(Source: Doing Business report 2013 by World Bank, Page no. 92). 
A look at the average documentary requirements in OECD countries (the best are even better) shows that we are asking too many documents, and which require too much effort to prepare. 

I don't believe that asking too many documents help in any way to improve administration, duty collection or control and security. It is just bloated bureaucratic requirements playing spoilsport in international business. If Denmark can do with 2 documents, it doesn't mean that they are compromising on security or duty collection. They have simplified their processes and let's try to emulate them. 

Second task force on reduction of transaction costs was constituted through this year's FTP supplement. I hope that it looks into this aspect seriously. Half of the transaction cost (and time) is locked up in documentary requirements. There is hardly much that this task force can do about infrastructure issues such as roads or ports. What it can actually do, is to take a real hard look on each document that goes into the process of international business from India, and take a sharp axe at most of them.