Transcript Trade liberalization

Trade liberalization
- Reforms in international trade:
- Direct Import Controls
- Tariffs
- Export incentives and restrictions
- Impact of liberalization
- Foreign investments and technology imports
- Direct Import Controls
a. Environment before 1976
- Biannual issue of import policy called as Red Book
the list of importable products with the amount to be importable, the amount of
imports, the source of imports and in some case the sponsored for imports used
to mentioned.
- The ratio of imports to GDP was only 3.5 percent in 1972-73
- Pursell (1992) “During this period, import substitution policies were folloed
with little with no regards to costs. They resulted in an extremely diverse
industrial structure and higher degree of self sufficiency, but many industries had
high production cost. In addition , there was general problem of poor quality and
technological backwardness, which beset even lower-cost sectrors with
comparative advantage such as the textiles, garments, leather goods, many light
industries, and primary industries such as cotton.”
b. Environment between 1976- 1980
- P. C. Alexander committee 1978
- Imports are divided in to three categories
i. Banned
ii. Restricted
iii. Open General Licensing (OGL)
- products were divided in to three categories
i. Consumer
ii. Capital
iii. Intermediate goods
c. Environment after 1980 and Direct Import Control
Methods:
- Progressive indigenization of the product
- it involved replacing the imported components with domestically produced
products
- Clearance of applications for industrial licenses for new or expanded capacity
- Technology import policy
- Trade liberalization during DIC
- The share of the canalized imports declined
1980-81 it was 67 per cent and it decreases to 27 percent. The share of canalizes nonPOL imports as a percentage of total non-POL imports decline from 44 per cent to 11
percent
- Open General Licensing (OGL) list expand steadily
it started in 1976 with 79 capital good , number of items increased to 1007 in 1986,
1170 in 1988, and 1329 in 1990.
The intermediate inputs in OGL list as increases; 620 in 1987, 949 in 1988
Imports that are not canalized nor subject to licensing increase from 5 percent in
1980-81 to about 30 percent in 1987-88.
- Several export incentives ,like Replenishment Licensing (REP), increased import
directly when they were tied to exports and indirectly by relaxing foreign exchange
constraints.
list of items under REP expanded
- Setting of the exchange rate at the realistic level reduce the biased against the
traded good relative to the non traded goods.
- Tariffs :
- The period 1980-88 considered as period of tariffication; tariff revenue as a
percentage of import increase from 27 percent in 1977-78 to 62 percent in 198788.
- World Bank (1987), “Although the rising average levels of tariffs since 1978 has
become accompanied by a steady increase in product under OGL, it should not
be interpreted as an upward adjustment of tariffs on imports freed from
licensing, in ordered to maintain the protection of competing domestic
industries. Most items (especially machinery) moved to the OGL list were not
produced in India, and those also were the products to which many of the tariff
reduction were applied, the purpose is to reduce their coast and encourage
modernization and development of industries which use them. On most nonOGL good the tariff increase occur. ”
- Export incentives and restrictions:
Incentives:
- Government adopted three important schemes; REP licenses, duty drawback
and the Cash Compensatory Schemes (CCS).
REP allow the exporters to import some of the non-OGL raw materials and
components on the restricted, limited permissible, and canalized list.
Duty drawback compensates the normal custom duties paid by the license
holders
CCS compensates the exporters for other domestic taxes, such as sales taxes.
- Measures to promote exports during 1985-86 and 1986-87
- A passbook scheme for duty free imports for exporters, it broaden the
coverage of the existing Advance licensing Scheme
- Reduction in the interest rate on export credit from 12 percent to 9.5 percent
- Faster processing of export credit and duty drawbacks
- Upward revision of Cash Compensatory Schemes for off setting the internal
taxes
- International Price Reimbursement Scheme for raw materials for all major
export sectors.
- Permission to retain 5-10 percent of foreign exchange receipts for export
promotion.
- Duty- free capital goods imports for exporters in targeted industries.
- Full remission of the excise duties and domestic taxes.
- Remission of 20 percent interest charges on IDBI loans for firms exporting over
25 percent.
- The impact of liberalization:
Year
Export/GDP(%)
Non-Oil
Imports/GDP(%
)
Imports/GDP(%
)
1972-73
3.7
3.1
3.5
1977-78
5.3
4.4
5.9
1978-79
5.2
4.7
6.2
1979-80
5.3
4.9
7.6
1980-81
4.7
5.1
8.7
1981-82
4.6
5.0
8.1
1982-83
4.7
4.6
7.6
1983-84
4.5
5.0
7.2
1984-85
4.8
4.8
7.0
1985-86
3.9
5.3
7.1
1986-87
4.0
5.6
6.5
1987-88
4.4
5.1
6.3
1988-89
4.8
5.7
6.7
1989-90
5.7
6.0
7.3
- Foreign investment and technology imports:
- The FERA regime remain intact during this period where as more changing
attitude towards the technology imports
- Industrial policy, 1980, “Companies which are well established R&D
organization, and have demonstrated their ability to absorb, adopt and
disseminate modern technology will be permitted to import such technology as
will increase their efficiency and cost-effectiveness”.
- Kumar(1994); from 1980 issued guideline to approve foreign collaborations. In
1980 foreign collaboration involving up to 5 million rupees in foreign exchange
approved not involving foreign equity participation to administrative ministries.
In 1987 this limit raised to 10 million rupees
- Rules in the payment of royalties and lump sum technical payment also relaxed
during this period.
- In 1986 government allow foreign equity in in the existing Indian companies .
- Kumar(1994); foreign collaboration per year increase from 242 in 1967-79 to
744 in 1980-88.