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March 31, 2000
Commerce Minister Murasoli Maran's Speech
The annual Exim Policy this year is somewhat special because it is the first policy of the new millennium and the first policy of the new government whose mission is to achieve a tremendous breakthrough in economic development in this decade, when the world is waking up to India's crucial role as the largest democracy and as a dynamic economy, while the new technologies (especially information technology and biotechnology) are opening up new opportunities.
Our trade policy reforms are aimed at creating an environment for achieving rapid increase in exports, raise India's share in world exports and make exports an engine for achieving higher economic growth. If there has been one clear cut lesson of recent development experience, it is that rapid overall economic growth and increase in employment depend on rapid export growth and it is not surprising, therefore, that all fast-growing economies in the developing world are also export success stories because they recognise the importance of openness and they have either changed or are changing their trade policies accordingly.
Our strategy is - and needs to be - focussing on export-led growth which should be regarded as an integral and important part of our development effort and our central policy is the optimal exploitation of our country's comparative advantage vis-a vis the rest of the world.
The growth rate of 11.3% achieved during April-January this year though looks good when compared with the last two years' not-so-satisfactory export performance should not lull us into complacency.
Even this growth is partly due to good growth in world trade and revival of South East Asian economies to which countries our export has shown an impressive increase this year - 87% increase to Indonesia, 47% to Malaysia and 39% to Singapore, etc. Many countries have done better than us. China, achieved 41% growth in the first two months of 2000. Thailand's exports grew by 23%. Most Asian countries have been clocking 20% plus growth during the latter part of 1999. Hence, in spite of this year's double digit growth, I don't think our world share will improve beyond 0.65%, quite insignificant for a country of our size and capabilities.
It is clear that if we have to achieve sustained high growth of, say over 20-25% every year, we have to considerably diversify our export basket and the direction, for which we need to radically rethink our policies and bring about a paradigm shift in our export policy and procedures and also in the related fields. As is well known, there are many sectors in which we can make a mark given our skills and entrepreneurial abilities.
The world trade is growing in sectors like office machinery and automatic data processing equipment, electrical machinery, auto parts, transport equipment and the entire electronic sector from simple telephone sets and fax machines to high tech items. In all these items, our share of world trade is 0.1% or less. The details are given in the recently circulated discussion paper of the Department of Commerce on the need for a radical strategy for merchandise exports from the year 2000 onwards.
There is also great scope for export of iron and steel, manufactures of metals, leather and manufactures, pharmaceuticals, dyeing, tanning and colouring materials, toys and in plastic sector, in all of which we can definitely do well. Even half-a-percent of world share of export in these sectors - which cannot be considered an ambitious target - should help us to generate additional export of a few billion dollars.
In fact, I was just going through recently, the data on US general imports from our neighbouring countries such as Malaysia, Philippines, Thailand, Indonesia, etc, and I see that exports of items like toys, clothing, gift items, textiles, radio receivers, ordinary telecom equipment, etc, from these countries run into billions of dollars whereas our share has been quite insignificant.
A number of policy changes will have to be initiated if we have to exploit the vast opportunities in the global market. We have to also unshakle the irksome procedures and do away with needless restrictions.
Mere tinkering with procedures, etc. will serve little purpose. I am convinced that de novo thinking is necessary. For example, if we have to give a boost to investment, especially FDI in electronics sector, we have to completely alter our customs procedures, licensing system, duty structure, etc. Can we think of, say, a zero import duty regime for all electronics inputs, remove all customs procedures and checks and withdraw all regulations concerning the sector? Will such a policy help to attract investment in hardware electronics which is world's largest trading sector?
If I am not taken to be sarcastic, I would say that the recent phenomenon of the growth of software exports has been due to, apart from Indian's talent and knowledge in high-tech, "hands off" policy of the Government towards the sector. Some critics say that it is because we did not get to know much about this sector so as to device regulations which would have stifled the growth; but the issue is why not a similar approach to hardware electronics? I am therefore setting up a small Group (not a committee in the conventional sense) to quickly look into the various policy and procedural changes that are required to be introduced in the various departments of Government so as to enable us to achieve this objective.
The rapid growth of exports achieved by China and South East Asian countries has demonstrated that given the right policies and freedom from interference, our entrepreneurs will also ensure that we achieve sustained quantum growth in exports. My recent visit to the various provinces of the People's Republic of China has been an eye opener to me. The enormous interest evinced by the various functionaries like Mayors of cities and of the provinces in matters like GDP, foreign investment and export contribution of their cities, etc. is an exciting example that we can emulate.
I am proposing a major step of establishing, as in China, Special Economic Zones in different parts of the country. The idea basically is that in these areas export production can take place free from the plethora of rules, and regulations governing import and export.
The units operating in these zones will have full flexibility of operations. They would be able to import capital goods and raw materials duty free and would also be able to access the same from the Domestic Tariff Area without payment of Terminal Excise Duty. No permission would be necessary for inter unit sales or transfer of goods.
There would be no wastage norms or input-output norms. They would be able to undertake job work for the DTA units and would also be able to get their goods processed in the DTA.
The only condition would be that the units in the Zone would have to export the entire production and that DTA sales would be permitted only on payment of full applicable customs duties and additional duties without any concession.
The movement of goods from and to ports to and from Special Economic Zones will be unrestricted and without any hindrance. Any State Government or corporate entity or individual can furnish proposals for setting up such zones.
The Government of Gujarat has given a proposal for a Zone of 880 hectares at POSITRA and the Government of Tamilnadu has proposed a Zone of 1012 hectares at NANGUNERY for treating them as EPZs. Taking the size into consideration, I propose to consider them as our country's two first Special Economic Zones which may come into operation very soon. I want to create a healthy competition among all our States and Union Territories and hope that they would offer still larger areas to be declared as Special Economic Zones.
I will be writing to the Chief Ministers to give special facilities to the units located in such zones. We expect that the minimum size of the Special Economic Zone shall be 400-500 hectares or more. In the meanwhile, it is also proposed to convert the existing Export Processing Zones into Special Economic Zones though the area of such Zones are limited due to historical reasons. Immediately, SEEPZ, Kandla EPZ, Vizag EPZ and Cochin EPZ are proposed to be converted into Special Economic Zones.
I am also convinced that we must fully involve the State Governments as in China in the export efforts. As far back as 1962, the Report of the Import and Export Policy Committee has pointed out that there was lack of export consciousness and it was not confined to businessmen and that even the State Governments do not always seem to be alive to the primacy of export promotion; and some of their policies, particularly in the fiscal field, have hindered the even flow of exports'.
Even today, it is true; we have to create an export consciousness among the States to tap their full export potential. Foreign trade being a subject on the Union List, no organised institutionalised arrangements currently exist for incorporating the States into the export effort of the country.
Even though the exports benefit the States from where they originate, especially by way of employment generation, for the State Govts it is a drain on their revenues because exports are by law exempt from all local levies. Perhaps this is the reason why the States of Tamil Nadu and Kerala have not been in a position to promote exports to the extent Sri Lanka has, despite having almost equal if not more potential for exports.
This is also true of West Bengal when we compare its exports with those of Bangladesh which is presently giving our garment exporters a run for their money. There is no reason that the highly developed State of Punjab and the industrialised State of Gujarat should not be able to match Pakistan in exports. It is evident, therefore, that a way has to be found for motivating and involving State Governments in this effort for realising the full export potential of the country.
When I mentioned this to my colleagues Thiru K.C. Pant, Deputy Chairman, Planning Commission and Thiru Yashwant Sinha, Finance Minister, they readily agreed with me and offered resources to the tune of Rs. 250 crores for this purpose at the time of supplementary budget this year and also to improve upon the quantum of resources for this scheme in the coming years.
The details of the scheme will be announced shortly. Under the scheme the States will be empowered with necessary resources and requisite flexibility and initiative in decision making, to make valuable contribution to the export effort by way of creation of necessary export infrastructure.
I hope that the State Governments will take the initiative to create the right atmosphere for export oriented units to be set up in their States and also involve themselves actively in export promotion as these efforts will help create gainful additional employment. I am also proposing to write to State Governments requesting them to issue notification under the Industrial Disputes Act to declare units exporting more than 50% of their turnover as public utility services to enable them to keep their international commitment regarding delivery schedules.
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