February 13, 2001


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Ashok Mitra

The great surrender

Freedom, the sagest of the sages say, is the key to economic development. The World Trade Organization could not agree more. And since the WTO's word is of biblical import to our government in New Delhi, the new trade policy announced recently has ordained a total lifting of quantitative restrictions on the import of 715 commodities; this is in addition to the 714 commodities that were granted the imprimatur of freedom last year.

The list is truly impressive. Our countrymen are now permitted -- perhaps cajoled is the right expression -- to import, without let or hindrance, 147 items of farm products, 342 items of textiles and 226 industrial products.

The universe covered includes milk, cream, butter, coconut and coconut oil, tea, coffee, wheat, rye, barley, maize, parboiled rice, jawar, bajra, ragi, onion, egg yolk, seed grains, grapes, cabbage, cauliflower, pomegranate, potato, orange, tangerine, spices, synthetic fibres, cotton textiles, carpets, table covers, rugs, curtains, towels, apparel, alcoholic drinks, petrochemical products, fertilizer, rubber, ceramics, crockery, precious stones, gum, wax, plastic and fibre suitcases, handkerchiefs, exercise books, bags, tarpaulin, tents, tiles, aluminium and copper wares, pressure cookers, radio, televisions, bulbs, tractors, jeeps, motor cars including secondhand ones, lorries, trucks, scooters, motor cycles, mopeds, autorickshaws, boats, motor launches, yachts, trawlers, life-boats, watches, pens, so on and so forth.

Import duty on this range of commodities, it has been additionally stated, will be appropriately adjusted downwards and phased out over a period of time in conformity with WTO directives. All told, it is a magnificent harakiri ceremony for Indian agriculture and industry. The sagest of the sages, however, say that this is the road to development, and the WTO could not agree more.

In fact, the WTO itself has a provision in its article 18B whereby a developing country is entitled to continue with QRs of agricultural imports in case the country's balance of payments position is tight. But have not our foreign exchange holdings soared to the level of $40 billion and beyond? Is it not therefore infra dig on our part to plead balance of payment difficulties? The ministry of finance could not be a party to any such subterfuge. With great glee, it informed the WTO that the latter is welcome to order our government to lift QRs on farm imports; balance of payments problems must not any longer be used as alibi for protectionism.

Take another look at the 1,400 and odd commodities that are to be brought in freely as a result of decisions taken over the past 12 months. The nation has been of late shaken by reports of the spate of suicides among the farming community; cheap grains and cotton from abroad are taking away its market. The process will now be aggravated.

The state of affairs is going to be the same in the manufacturing sector, already suffering from a bout of recession. Radios, televisions, aluminium and steel products, copper products, electrical wires, automobiles of all descriptions, watches, boats and ships are now to be let in freely.

The rate of growth of industrial production has over the past decade been halved compared to the rate of growth in the preceding decade. The deceleration is bound to gather pace, resulting in large-scale lay-offs.

In the automobile industry, for example, output has already dipped to 20 per cent of capacity; there should be no blinking of eyes if the utilization of capacity now declines to as low as 10 per cent.

Or consider the textile sector, including small-scale operations. It has been traditionally responsible for 30 per cent of industrial employment and 15 per cent of industrial production in the country. Both percentages are going to fall further. Developments in the textile sector have a backward linkage with the problems in cotton production. It is therefore a generalized crisis which globalization will usher in.

Defenders of official policy offer one rather precious argument in support of their point of view. At least on account of liberalized farm imports, while agricultural producers might suffer, consumers might benefit from lower prices. The overwhelming majority of our consumers however happen to be sharecroppers, small farmers and landless agricultural workers. If the benign government deprives them of their source of income, where will they get the wherewithal to buy cheap imports? And very often these imports are cheap because foreign governments subsidize their export to our poor country, just as our government is subsidizing wheat sales abroad.

Inanity, thy name is officialdom. The first generation of so-called reforms has done sufficient lethal damage. The government's response to this discomfiture is to initiate the second generation of reforms, exemplified by this year's Union Budget, the set of monetary and financial policies recently announced and now the trade policy proclaimed with such flourish.

The nation is being told that, for the sake of its survival, it is essential to globalize, never mind if such globalization, in its turn, as good as liquidates the nation. It is an echo of what the American general had once informed the world: in order to save Vietnam, it is first necessary to destroy that country.

One other argument touted by the liberalization lobby is that in case you allow free imports, the foreigners, particularly the group of seven nations, can also be persuaded to allow our exports to enter their countries to a greater extent, thereby raising our share in world exports. Do these people ever care to look at the nitty-gritty statistics that are available?

During the quinquennium, 1950-55, India's average share in world exports was 1.64 per cent; at the end of the great decade of globalization, this share has shrunk to 0.62 per cent. Similarly, in the mid-fifties, the share of exports to the G-7 countries was more than 53 per cent of our total exports; this share has declined to around 46 per cent in the decade of freedom. These data have not been invented, but are mentioned in a recent publication of the department of economic analysis and policy, Reserve Bank of India.

Let us consider some other facts. India's exports were of the order of $18.5 billion in the year immediately preceding the introduction of the records, that is in 1990-91. This magnitude had advanced to $38.5 billion in 1999-2000, the latest year for which data are available.

In contrast, imports were $27.9 billion in 1990-91 and advanced to $ 55.4 billion in 1999-2000, which means that over the decade of expanding free trade, our trade deficit had nearly doubled.

The situation is likely to be far, far worse in the coming decade. The retort will be, "What do we care? We have $ 40 billion worth of foreign exchange reserves to tackle any balance of payments that might arise. But we also have NRI deposits worth $23 billion which are repatriable on demand; there are, besides, three billion dollars of portfolio investments which could flow out of the country at a moment's notice. On top of all that, the country's external debt is in the neighbourhood of $100 billion."

In such matters, any meaningful exchange of views with the decision-makers is quite impossible. They are determined not to look at facts. They will not take into account the hardship countrymen are to be subjected to because of the frightful import policy they have announced. The bulk of these decision-makers, if not all, belong to the thin stratum of society at the top. If a cataclysm strikes the country, their foreign friends, they firmly believe, will bail them out; let the rest of the nation drown, nobody need bother to save them.

Those in power, some will maintain, are not altogether heartless. Have not the government mentioned a "war room" where a monitoring committee will sit, watch the effects of the new policy and, where necessary, take ameliorative measures? Has not the government also proposed new legislation to stiffen anti-dumping measures for protecting our producers?

These are, alas, all eyewash: once the great surrender has been effected, any pro-producer measure our government may contemplate will be subject to WTO rules, which are stern in the extreme. Rest assured, the WTO will also insist on the rapid demolition of tariff walls.

But ordinary folk should still feel buoyant. They can drown their sorrow in Scotch whisky, now freely available in the country.

Ashok Mitra

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