Defending the new thrust

Print edition : April 15, 2000

Murasoli Maran, Union Minister for Commerce and Industry, has had a hectic time since he assumed the dual portfolio last October. He walked in midway through preparations for the ministerial meeting of the World Trade Organisation in Seattle and t hen had to steer the tortuous negotiations over the dismantlement of quantitative restrictions (QRs) on import through its last phase. The Exim Policy announcement of March 31 was his first grand summation of a policy vision. In an interview with Sudh a Mahalingam and Sukumar Muralidharan, he elaborated on the details of the policy. Excerpts:

Could you explain the basic purposes of the Exim Policy - the objectives that underpin it?

Basically we have to change the content of the export basket and also the direction. My policy is based on the fact that we are a modern India with knowledge-intensive industries and also a traditional India which exports a lot of handicraft items. We sh ould strengthen both. And there is a lot of scope for this. The emphasis should be shifted to export-led growth, since all the success stories among the developing countries indicate this factor strongly.

Is that why you have announced this policy of special export zones?

It is a modest beginning, I would say.

But the experience with export processing zones (EPZs) has been rather indifferent.

That is why I say this is a humble beginning. We did not make a very bold effort. In fact our EPZs were the first ones to have been created among developing countries. But their condition is very pathetic - their contribution is not much. Whereas in Chin a, these zones contribute about 40 per cent of exports.

You had been on a visit to these export zones in China recently. Has that been one of the inspirations for this new policy direction?


Seeing is believing. We had read much of it, but when we go there, the Deputy Mayor of a small town talks in terms of gross domestic product. The Mayor in his reception says, our country's GDP is so much, our province's is so much and our town's is this, which puts the contribution of our town to the GDP at such and such percentage. It is called China fever!

One of the problems with India's export zones is that even if aggregate exports have been high, value addition has not been much. How will you ensure that domestic value addition is adequate?

It is not the Ministry of Commerce alone, but all the Ministries will have to cooperate and work on this. Take, for example, our ports - it takes about six-and-a-half days (to turn around a ship), whereas it is six hours in Hong Kong or Singapore. But of course the privatisation efforts are on at the Jawaharlal Nehru Port Trust (JNPT, at Nava Sheva) and also in Chennai. Big liners do not come here - they go to Dubai and Colombo. We send our ships out only for transshipment. We are losing our business to Dubai and Colombo.

How will the special export zones be different from the EPZs?

This is still at the conceptual stage. The important items are, first, full flexibility of operations - units inside the zones would be able to import capital goods and raw material duty-free and would also be able to access the same from the domestic ta riff area (DTA) without payment of terminal excise duty. Now, the important thing is, no permission would be necessary for inter-unit sales or transfer of goods. The problem now is that I could be creating fabrics, you could be doing the dyeing. But I wo uld have to get the permission of customs to go to your premises, which could be just the opposite. And then from there to go to another unit you would have to get further permission. So now all these inter-unit transfers and sales would be easier. You w ould have one-stop grant of permission. And then you would have to take permission to take your product to the port. Or if you want to sell it in the DTA, you would pay the full duties applicable and do so.

Then units in these zones would be able to undertake job work for the DTA. Suppose I am idle, I would be able to take on job work. Supposing something is missing in my unit - the last mile problem - and it is available in the DTA, then I would be able to send it across.

There would still have to be some supervision to ensure that there is no diversion.

Naturally, since we cannot allow legal smuggling. But the point is, there will be no inspector raj inside the zone.

Is your main priority the conversion of the existing EPZs or setting up of new SEZs?

Tamil Nadu and Gujarat had sought permission to set up SEZs. Considering the vast area we thought we could make them better run as India's first two SEZs. The conversion of the existing EPZs is a separate matter.

Do you propose to give any tax breaks to units in the SEZs?

We have made a request to the Finance Ministry. We are awaiting a decision.

But the Finance Minister has just made known his intention to bring all export earnings within the tax net.

That is (under Section) 80HHC. This is a different thing. These are two different things. Anyhow we have made a request.

You have made this proposal about treating units with over 50 per cent of turnover as exports as public utilities. What are the implications?

If the units have got international obligations to fulfil, if at all they have to be reliable, they will have to meet a time schedule to finish their job and send their material. In this borderless world, if you are not performing, they (customers) may c ancel the order or not place an order the next time around. That is why we have written to the Chief Ministers, saying they should be given this facility.

This gives them a distinct legal status from other production units.

Just like hospitals they would be declared public utilities. Whatever is applicable to public utilities will be made applicable. And it is left to the State governments. We are not thrusting anything on them.

Does this mean that labour laws would be relaxed?

Even then there is nothing wrong. It is left to the State governments. We are not going to pressure them.

The State governments have been offered certain incentives for export promotion, to the extent of Rs.250 crores. Considering the magnitude of the infrastructural problems and so on, is this an adequate sum?

No, this is just peanuts. But the principle has to be appreciated. So next year we may have to devise a formula just like the Gadgil formula. In the sense that if they show some increase in their exports, which is more than the normal rate of increase, t hen we may have to give more. Then only would the States have an incentive. If we give them the incentive then the States will pick it up. Otherwise why should they bother? Now they are taxing various inputs - octroi is there, sales tax is there. Then th ey could come and say we are removing sales tax for these goods, please compensate us. We could do so if there is a sufficient increase in exports.

Another major area of this Exim policy is in the dismantlement of QRs on 714 product lines. What was the specific rationale you used in selecting these rather than some other mix of products?

You see we either have to do it this year or next. One year's facility is there. This is not the first time we are removing these QRs. The tariff lines made free on April 1, 1996 amounted to 6,161. Tariff lines made free from April 1, 1996 to March 31, 1997, were 488 (in number). And then on 1.1.98, 132 (tariff lines were made free). Then on 30.4.98, 391. Then on 1.4.99, 894. So it is a continuous thing.

In economic terms, QRs are bad. I would call them not "quantitative restrictions" but "quota raj". For example, the economist Anne Krueger has said that these QRs are all "windfall profits or rents which accrue to the successful lobbyist". Because the di scretionary element is there, only lobbyists can benefit. She says (these lobbyists), "follow the rent-seeking activity, just as a missile seeks heat". She is the first economist to quantify what it would cost to a nation. In India, in 1974 she identifie d that these kind of windfall profits to lobbyists amounted to 7.3 per cent of national income.

So then we have Jagdish Bhagwati, he has given it a new name - directly unproductive profit-seeking, or DUPE, activities - "the appropriate acronym for resource-using activities that directly yield zero".

But agriculture and small-scale industry are a bit unhappy about this...

First let us take small-scale industry. There is an anomaly prevailing. The total number of items reserved for the small-scale sector is 812. But the total number of items which are made free for import is 576 already. This time we have put 58 more items on OGL.

All over the world, only five countries maintain QRs - Tunisia, Pakistan, India, Sri Lanka and Bangladesh. Tunisia is removing these by July 2000. Pakistan is removing it by 2001, like us. The remaining two countries which will maintain QRs for BoP reaso ns are only Sri Lanka and Bangladesh.

What about agriculture?

There is no cause for worry. Our binding rates are very high. For agricultural raw materials, it is 100 per cent, for processed foods, it is 150 per cent, edible oils 300 per cent. Wherever binding rates were low due to historic reasons, under Article XX VIII of the General Agreement on Tariffs and Trade we have put it for milk powder at 60 per cent, paddy 80 per cent, broken rice 80 per cent - all this is incorporated in the Finance Bill. Milk powder we had kept at zero, now we are lifting it to 60 per cent. Maize, cornseed, we had kept at zero - now we have raised to 80. I do not think our agriculture sector needs to worry.

All these have been bilaterally agreed with the U.S.?

Not just the U.S., but the European Union and Australia and others. Also, there is an impression created that you can "get into American tracksuits, eat caviar, present Mikimoto pearls to your girlfriend" - all this you can do, but you will have to shell out the price with all the duties that it attracts.

But there are sections that would be willing to pay the price...

Those sections are already getting it from Dubai and Singapore. They are getting it through smuggling. Now they have to buy it with full duties paid. Another thing - there is a fear that we have opened up. But the WTO has given us weapons - for instance, Article VI gives us anti-dumping powers through countervailing duties; Article XII gives us powers to take action on safeguards; Article XVIII gives us powers to take infant industry protection; Article XX gives us powers to protect on the basis of envi ronment and health; and most important, under Article XXXI, we can take safeguards on national security. So if we get reports about predatory pricing or about cartel formation or if there is a sudden surge in imports, then we can take all these measures.

But have anti-dumping measures worked? The steel industry has been complaining for long that they are being subjected to unfair dumping...

There will be such cases. But if the government functions efficiently we can prevent such things. There is no exit - this is an international obligation. It all started in 1947 and culminated in Marrakesh in 1994. In Marrakesh we have given our approval to about 14 items - the first is tariffs; the second is negotiations to reduce non-tariff barriers - so we are a signatory to it.

Are the anti-dumping provisions of the WTO agreement sufficiently strong?

Very strong. Every country is using it. But there is no perfect system anywhere in the world. Somebody should do the whistle-blowing. Somebody should watch the system. That is why I gave an indication that we should strengthen the Tariff Commission.

But the Tariff Commission is not taken into confidence in any of your decisions.

I created the Tariff Commission when I was Industry Minister. Then there was some difference of opinion between the Finance Ministry and the Industry Ministry. Anyway we created it and then the government fell. Now it has become a dumping ground. So we h ave to reactivate it.

You mentioned the need to change the composition of the export basket. What are the items you think should be included in the basket?

You see in hardware, the world market is $800 billion. Our share is zero. Here is an area where we can do something. I have created a small group to find out how we can do this.

But your stated areas of emphasis are software, jewellery, pharmaceuticals and biotechnology.

Yes. We have created a Diamond Dollar Account. You know we are the largest exporter of cut and polished diamonds..

But there is supposedly very little value addition in this.

No, no - things have changed. India's share in global markets is 50 per cent in terms of value, 80 per cent in terms of cartage and 90 per cent in terms of pieces. That is why we are placing a major emphasis on developing India as a source of jewellery e xports.

And on software, do you have any specific measures in mind?

The only thing is that we should not disturb it. The government should stay out of the way.

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