For several years, exports from India did extremely well. Whatever the reasons for this may have been, an "if it ain't broke, don't fix it" view emerged in the trade policy debate. Consequently, the annual ritual of the trade policy announcement was reduced to a mere formality, not worthy of much discussion or analytical comment, save the routine second editorial in the odd business daily. However, over the past couple of years, the situation has changed dramatically. Exports have been declining consistently and, even if imports have also been slowing, the trade gap has widened to alarming levels. The narrowing last month does not provide any comfort that the trend has reversed. In turn, this has contributed to the expansion of the current account deficit to unprecedented levels. Most observers agree that this is now the number one danger to macroeconomic stability. Against this backdrop, this year's trade policy, due to be announced early next month, assumes renewed significance.
Whether or not the policy will make any difference depends on the assessments on which it is based. It needs to be both holistic and realistic in its approach. First, any judgement on growth potential needs to take into account the sluggishness in India's major export markets - the US, Europe and Japan. Empirical studies of exports typically find a far greater sensitivity to global demand conditions than to other determinants, like the exchange rate. If this is the case, the prospects for revival in the short term are weak. These economies are showing signs of stabilising, which is reassuring, but a strong recovery is still elusive. Consequently, any growth in exports can only come from one or both of two sources. Indian exporters need to gain market share from their competition in other countries. And they need to explore new markets, particularly fast-growing ones, more aggressively. Both these objectives have been quite explicit in previous trade policies, but the focus and concentration required may have been dulled by the overall good performance. In pursuing these objectives, if there is anything to be learnt from more successful competitors, public-private partnership is unavoidable, both in terms of addressing domestic barriers and through strategic commercial diplomacy.
Second, trade policy must be seen in its broader context, that is, the multiplicity of other government actions or inaction that impact trade patterns. An obvious one is the under-pricing of fuel, which contributes to larger-than-otherwise crude oil imports. More complicated channels include the exports of iron ore foregone while ensuring enforcement of environmental laws and the large imports of coal necessitated by the widely publicised problems with domestic supplies. The implication of taking this wider view is that "trade policy" cannot remain the exclusive domain of the ministry of commerce and industry. To the extent that multiple approaches to narrowing the trade deficit are warranted, the least the minister can do is highlight the actions required by other ministries and branches of the government to deal with the issue. The last thing the economy needs is another annual policy, which goes through the motions of giving a few sops and making a few promises.