Exim Policy India Analysis Essay

EXIM policy should be more transparent which should favour export environment The EXIM policy (Foreign trade policy) was announced on 27th August 2009 for the period 2009-2014. It was announced at a juncture when the world was recuperating from the economic downturn. The downturn had caused a sharp contraction in international trade and adversely impacted global investments. The world trade suffered a drastic reduction of 12%. In this context, the EXIM policy focussed on arresting declining exports. Market diversification strategy was adopted in order to reach out to non traditional destinations in Africa ,Latin America and Asia since there was a sharp decline in demand in the traditional market. Technological up gradation of exports was encouraged and transaction procedures were simplified to reduce costs. Other steps planned wee to concentrate on Labour intensive sectors and the draft policy parameters to enhance the competitiveness of our exports by promoting technology upgrades. A Committee of Experts was constituted to revamp the procedures of transactions and administer the value chain of exports. Amidst the current global economic turmoil, the Indian government should take prudent steps to avoid the recurrence of another recession. In light of the recent developments, the EXIM policy should encourage exports and stimulate international trade. While, the current EXIM policy mentions a considerable emphasis on exports, a detailed check is required if the trade is actually adhering to the policies framed and if the transparency is being maintained in the transactions. a) Currency printing should be done by private top 3 financial institutions in the country. The Reserve Bank of India manages the currency in the country with the help of the advice from the government of India. RBI distributes notes and rupee coins to other bank branches through certain selected currency chest branches. Printing additional currency should be done in a controlled manner since it can have a great impact on the economy. India can’t merely print additional currency to meet public expenditure unless it is a time of extreme financial crisis. This method of increasing liquidity in the market is called Quantitative Easing and happens when the Central bank fails to inject liquidity in the system by lowering interest rates. This is mainly done to prevent deflation. However, uncontrolled printing of money causes inflation and can lead to hyper inflation in extreme cases. RBI uses three main factors are used to estimate the demand for bank notes – current growth rate of economy, replacement demand and reserve requirements. During the time of recession, it is all the more important to be prudent on printing money since the economy is on a decline and it becomes imperative to control inflation. Hence, monitoring the currency printing is of utmost importance and this can be achieved by allowing only the top 3 private financial institutions in the country. a) FDI should be allowed in multi brand so as to eliminate intermediaries and benefit farmers and industries directly. It will help in curbing inflation. FDI in multi brand retail should be encouraged since it would contribute extensively in the growth of the economy. It would improve the availability of high quality goods and create an environment of competitiveness in Indian entrepreneurs by giving exposure to global management practices. It would also encourage better technology and enhance efficiencies. However, the policy should be implemented within the purview of the state laws and regulations. This would ensure that there is no anti- competitive practices including predatory pricing. Investments in terms of FDI in retail would in turn help in developing the infrastructure of the country in terms of supply chain and logistics. This would also eliminate intermediaries and benefit farmers and industries directly. This strategy would greatly help in controlling recession since this help in generating demand at the low income level and eventually would eliminate the income divide. It would also curb inflation in an efficient manner. a) More emphasis should be given on R& D of capital goods which are prima facie being produced by developed economies. The profits of the capital goods sector is directly linked with the profits of the entire Indian industry. This is further corroborated by the high elasticity behavior of Capital goods industry to the fluctuations in the industry growth. One of the key stimulators for demand in the capital goods sector is the manufacturing sector which forms the end user of these goods. Another stimulator for the demand is the gross investment made in this sector by the country. It is important to have a good demand for the Capital goods since its consumption constitutes 17-21 percent of the GDP of the country. However, the investments in this sector have declined when compared to other sectors. Hence, more emphasis on the investment and R&D of capital goods will provide considerable boost to the GDP of the country and in turn help in curbing recession. This is one of the most effective ways to control recession. a) Government should spend in agro based economies like Africa to have favourable terms for import of agriculture products. Although imports of agricultural products form a very small percentage of the total imports, the import duties and countries of trade pose significant hurdles. The current import statistics of various agricultural products are as follows. The total agri imports are in the range of 4-7 percent of the total imports. Edible oil accounts for more than 50% of the agri imports. Raw cashew nut accounts for about 10 percent of the agri imports. Other agricultural products imported are – cereals,pulses,spices,sugar chicken meat etc .However, these form a very low percentage of the agri imports and are imported in climatically abnormal years. Government should put extensive effort to build ties with agro based economies like Africa which would help reducing the expenditure on agricultural imports. This in-turn would help in maintaining the balance even in adverse years when domestic production fails to fulfill the demand. This gap between demand and supply in a bad year is one of the root causes of creating a recession. Hence, this is a cost effective alternative to fulfill this supply and curb the occurrence of a recession.