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Hegde flays protectionism

Rajesh Ramachandran in New Delhi

Union Commerce Minister Ramakrishna Hegde has declared that protection to domestic industries is wrong, a stand in direct opposition to the saffron brigade's swadeshi plank.

In his first public address on the economy after he presented the revised Export-Import policy, Hegde admitted that he was being highly ambitious when he set the export growth target at 20 per cent for the next financial year.

At a meeting with the Federation of Indian Chambers of Commerce and Industry executive committee, Hegde said, "A number of industries in India have been enjoying protection for many years and have been very profitable. Nevertheless, their quality and productivity are not world class."

The commerce minister ruled out devaluation of currency as sought by the exporters. Earlier, FICCI's foreign trade committee chairman R V Kanoria had argued that the exchange rate of rupee should be Rs 46.5 per US dollar.

"After the 70 per cent correction in 1991, there has been no full adjustment of the currency for inflation. And the uncertainty in the value of rupee is detrimental to foreign direct investment inflows," Kanoria said.

But Hegde pointed out that a devaluation could significantly increase the repayment obligations and result in a strain on the economy. The alternative, he advised, was to become efficient and competitive in exports.

Hegde refuted most of the arguments usually mooted in favour of protectionism. "More domestic competition before opening up would not work because even where such competition existed, it has been in theory rather than in practice as many firms could make cartel arrangements," he pointed out.

While admitting that the targeted export growth was highly ambitious, Hegde said that his calculations were based on various measures taken by in the new exim policy.

The revised Exim policy, which had liberalised the imports of several consumer products, has not gone well with the ruling Bharatiya Janata Party.

BJP president Kushabhau Thakre, in an exclusive interview to Rediff On The Net, had explained the import liberalisation as an unpleasant necessity brought about by the World Trade Organisation. He was firmly against the presence of multinational corporations in the country, especially in the consumer sector.

Aware that the traditional tariff barriers can no longer work under the new World Trade Organisation, the exporters and delegates at the meet advised the commerce minister to impose more non-tariff barriers, as the West was doing.

The developed world has been using child labour, eco-friendliness and general health standards as non-tariff barriers against exports from India.

Hegde's diagnosis of the poor export performance was: lack of infrastructure, inefficiency, bureaucratic bottlenecks, and an administration based on mistrust. And the remedy he prescribed was to maintain a minimum standard in products and services.

The exporters lobby has pointed out that the balance of trade has been disquieting with the export growth rate coming down drastically from 21.4 percent in 1995-96 to 2.4 per cent in 1997-98. They pointed out that in light of the present performance, his export growth target of 20 per cent was a stiff challenge.

The exporters' charter of demands include export finance competitiveness with international interest rates, correction in rupee value, removing cost disabilities like sales tax and octroi, full rebates for all taxes, and recovering the cost of the rebate through an equivalent tax on imports.

They have demanded that the export promotion zones should be totally exempt from taxes, and provided with world class infrastructure and separate labour laws. Moreover, all the power projects in the export processing zones should be exempt from central electricity authority's and other such clearances, they added.

Most of the industrialists attending the meeting asked for better infrastructure to improve export competitiveness.

Hegde gave the exporters a patient hearing, and promised to look into their grievances.