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March 29, 2001
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Money > Specials March 29, 2001 |
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George Iype
Anxiety is sweeping across the entire spectrum of Indian enterprise -- companies, small-scale industries, commercial enterprises, agricultural sector, the works -- as all import restrictions to the country are set to vanish from April 1, 2001.
The rules and regulations of the World Trade Organisation will henceforth have a profound impact on the way Indians do business.
All import curbs will be a thing of the past and India will begin doing business under the WTO regime. With the government amending the Patent Act 1970 to comply with the requirements of the Trade Related Intellectual Property Rights of the WTO and agreeing to phase out the controls on all imports, the month of April will be the beginning of a new trade game in the country. And it has made the entire Indian commerical world edgy. Very edgy.
'We need to adjust to the situation....'
"Indian industries will have to adjust to the situation with the removal of the quantitative restrictions on imports after April 1," says Raghu Mody, president of the Associated Chambers of Commerce and Industry of India.
Trade and industry bodies like Assocham, the Confederation of India Industry and the Federation of Indian Chambers of Commerce and Industry have been advocating that the government should 'cushion' the impact of the QR removal.
Mody points out that hiking import duties by 100 or more percentage levels could absorb the effect of the QR removal.
It is not that Indian companies are not ready for the change. Many of them are in fact designing new strategies for survival.
But farmers, manufacturers, and big and small industrialists are anxious. As India becomes an open market, many fear free imports of cheap Chinese and Taiwanese goods will be a real threat to the Indian manufacturing sector.
Already the CII and Assocham have decided to send trade delegations to China to study how companies there are able to produce goods so cheaply.
The consumer to benefit...
What are the sensitive items, which are currently under the quantitative restrictions imposed on the balance of payments grounds list?
There are many. But the few important ones are all electronic hardware, meat, ready-made dresses, vegetables, milk, fruits, food oils, toys, shoes, batteries, leather, engineering goods, cotton yarn, granite, unwrought aluminium, diamonds, industrial raw materials and automobile items.
"Coming are the months for the consumer. There will be a variety of foreign consumable, electronic, automobile and garment items that will be freely available to consumers in India. The only fear is whether the complete removal of import curbs will badly affect the small-scale industry and the agriculture sector in India," says K V Parasuram, a Bangalore-based expert on trade-related issues.
But Parasuram at the same time points out that the free movement of goods and services under the WTO rules will ultimately help India.
"The WTO tariffs agreement means that there is a multilateral undertaking not to increase the tariff above a specific level," he adds.
There will be many advantages after April 1. In fact, Parasuram says in industrialised countries, tariffs have been reduced on manufactured products by an average of 40 per cent because of the WTO regulations.
The reduction in tariffs would offer a great opportunity to India to export its products to all developed countries, which are WTO members. In sectors like garments, engineering products and leather, where India continues to be a leader, the country would benefit further with a great export potential thanks to the new WTO rules.
The tariff reduction will result in production of value-added services. This could lead to many new enterprises coming up.
According to R Seshasayee, managing director, Ashok Leyland and chairman of the CII's International Trade Committee, if QRs are being phased out by April 1, it is because "India chose to do so.... because we believed it is good for the competitiveness of Indian industry".
"If tariffs have to be brought down, we chose to do so because we believed that reciprocal action by other countries would stimulate our external trade and strengthen our exchange reserves," he points out.
"Let us clarify that the WTO is no invasive army waiting to tear at our borders. It represents a body of agreements that we have voluntarily entered into," Seshasayee added.
A flood of imports....
Over the past few months, Indian markets have been flooded with a plethora of imported foods: Chinese toys and apparel, Taiwanese gadgets, Swiss cheese, New Zealander apples, Thai biscuits, Brazilian chocolates…. the list keeps on growing.
These imports have been allowed with India setting out to fulfil its commitment to the World Trade Organisation under the agreement on agriculture (AoA) to improve market access for foreign foods.
The time is ripe now for a flood of food imports to inundate India with the WTO's dispute settlement panel rejecting India's stand on quantitative restrictions.
India had entered into bilateral pacts with its trading partners for a six-year phasing out of QRs from April 1, 1997 to March 31, 2003. However, this timeframe was not acceptable to the US which took India to the disputes settlement process.
India has been progressively phasing out QRs. In the 1997-98 policy it freed 406 items, in 1998-99 it freed 896 items and put 414 under special import license.
Farmers in trouble?
Most items under QRs are agricultural items on which import restrictions were imposed to safeguard the interests of India's large agricultural community. Two-thirds of Indian farmers are in the small and marginal category. Yet, most people feel that with a level playing field these farmers will be more than able to compete with their western counterparts in agricultural production and export. However, this has been denied to them.
India's domestic support to its farmers is pathetically low, compared to what the developed nations offer their farmers -- even after providing for fertiliser, electricity, irrigation, seed subsidies.
Under the agreement on agriculture (AoA), developed countries have reduced their domestic subsidies by 20 per cent, which will not make a major difference in terms of reducing the inequity between farmers in developed and developing countries.
Apart from domestic subsidies to farmers, developed countries also provide massive export subsidies to their agri-business corporations which enable them to dump agricultural surpluses (generated thanks to the huge domestic subsidies) in developing countries at less than cost of production.
Those who will be most affected by the removal of QRs are the small and marginal farmers and industries which constitute a very big section of the Indian economy. Given their small size, they need more time to equip themselves to face the challenges of a QR-free regime.
Foreign companies, with their incredible economies of scale, heavy subsidies, control over technology and aggressive promotional techniques, are bound to have an edge over Indian companies in terms of quantity, quality and price. This is over and above the fact that India's import of consumer goods anyway exceeds that of capital goods.
Another fear that has been expressed by many an analyst is that large-scale production could lead to supply of these goods exceeding demand. This may result in a drop in prices and soon spell loss of job opportunities, retrenchment, closures of industries and stoppage of production.
Govt elicits industry opinion
Meanwhile, the government has had numerous meetings with various industry organisations to elicit their views on the impact of the removal of import curbs or quantitative restrictions on hundreds of tariff lines and its repercussions on the local business.
Senior industry official opine that small-scale industries would bear the brunt of QR removal. As such a strategy to help local manufacturers compete with imports would soon have to be devised.
"The small-scale industries will need more support to face the challenge of the opening up of the markets to foreign manufacturers. Bigger players would be better equipped to meet the invasion head-on," says a senior industry association member.
Some analysts believe that the government should not hesitate to increase applied rates of tariffs if the local industry is hurt by imports.
However, they state that the hike in duties should not be high enough to give a boost to illegal imports.
The inter-ministerial group on QRs acts as an institutional mechanism for receiving suggestions on the suitable measures and strategies that need to be adopted to safeguard the interests of the domestic industry and to create a level playing field in the wake of the complete elimination of QRs by March 31, 2001.
Ever since the removal of QRs on 714 items from April 1, 2000, the government has been taking supportive steps for domestic industry, including increase in customs duties on a range of agro-items and initiation of suo motu anti-dumping probe with a view to providing them some breather to brace up to competition.
The prohibitive restrictions may choke industry...
As per WTO agreements, member countries should not prohibit or restrict trade by imposing quotas, licensing, or by any other measures.
Ever since India became a member country of the WTO in 1995, the country is committed to reducing tariffs on capital goods, components, intermediaries and industrial raw materials.
But developing countries like India were permitted to maintain quantitative restrictions (QRs) due to balance of payment (BoP) position. India initially committed to phasing out the QRs ground for around 3,000 tariff lines in a phased manner by the year 2003.
But India did not want to wait for long. It has been abolishing QRs step by step over the last three years. In 1999, India removed restrictions on 894 items. Then India pledged to the WTO that it has decided not to wait till the year 2003, but abolish all import curbs by April 1, 2001.
Everyone agrees that the WTO rules have had a profound impact on the way Indian economy and businesses have been functioning since 1995.
But now that the time has come when the QRs are being completely abolished. How will it affect the Indian businesses is the worry of industrialists and agriculturists?
The most concerned lot includes the pharmaceutical companies, the automobile companies, the food manufacturers, electronic equipment manufacturers and the information technology sector.
Part II: How WTO regime will impact various sectors
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