Wide Angle| Tipping Trade

I never had any doubts over Commerce Minister Nirmala Sitharaman’s claims when she, in a recent interview, broadly hinted that India has already done what needs to be done to comply with WTO’s trade facilitation deal. 

 

But I was a bit worried. 

 

If India’s performance in terms of trade facilitation had improved so much, as a reporter who covers the trade beat, I should have known that.  And if I didn’t, it was a major miss, or negligence of duty. 

 

A week later, I came across an otherwise mundane report of the Comptroller and Auditor General of India, and found it very interesting for the reasons stated above. It proved that the minister was mostly right, and my concerns were mostly genuine. 

 

The CAG report, submitted to the Parliament on 5 May, 2015 had closely looked at the performance of import and export trade facilitation through customs ports during the period 2014-15.

 

Right from the introductory remarks, the report shared my fear, as it quoted World Bank’s “Trading Across Borders” Report for 2015 to indicate that India ranks a distant 126 out of 189 countries in terms of trade facilitation. It also said that the number of documents required to import and export, the time taken and the cost to import and export in India, has more or less remained the same in the past 4 years.

 

The Trade Facilitation Agreement (TFA) of WTO necessitates India making binding commitments on facilitating customs and other border procedures which includes among others, publication and availability of information to members, providing for an Advance ruling mechanism, an appeal and/or review mechanism, regulating the fees and charges other than duties, faster release and clearance of goods, border agency cooperation between the members, minimizing the incidence and complexity of import, export and transit formalities and to decrease and simplify document requirements. 

 

Joe C Mathew

The CAG review was meant to straighten out the short comings, as it felt that effective implementation of the TFA provisions and disciplines within an internationally agreed time frame, in spite of the IT initiatives and various facilitation measures introduced by the government, was really challenging.

 

The audit observed that though there was a decrease in the dwell time during the period 2010-11 to 2013-14 for clearance of goods, this could be further improved by implementing the trade facilitation measures initiated by Central Board of Excise and Customs more effectively. According to the report, 70 per cent of the dwell time was attributable to filing of bill of entries and payment process in case of imports and in exports filing of the EGM (Export General Manifest, the document which has to be filed with customs department by shipping liners or air craft liners) constituted 90 per cent of the total time.

 

“These stages caused delay which needed to be addressed to reduce the dwell time and the consequential reduction in transaction cost”, CAG recommended.

 

The audit also found that there were delays and bottlenecks in electronic data interchange projects and revealed that their inter-connectivity is still work in progress. 

 

Now you might want to ask, how come, then, the minister was right? 

 

That is so because; almost every electronic data interchange projects that have been mentioned here are already operational. Further, the new foreign trade policy has simplified the rules and customs procedures to make it user friendly. 

 

For instance, CES, the automated workflow process related to the clearance of import and export consignments that presently handles 98 per cent of India’s international trade, was launched in 1995. ICEGATE, an electronic commerce portal that offers a host of services to trade including electronic filing of the import and export documents and related electronic message between Customs and the trade was implemented in 2002. The Risk Management System (RMS) operational since 2005, provides for the clearance of low risk consignments without assessment or physical checking.

 

Other trade facilitation measures such as SEZonline,  an integrated solution developed for the speedy processing of various transactions that SEZ developers, co-developers, units, EOUs and deemed exporter have with SEZ administration, or  DGFT (EDI) or an interface which allows trade to interact with DGFT in applying for licences, IEC code, status tracking etc are also well in place.  

 

Port Community System (PCS) that integrates the electronic flow of trade related information and functions as the centralised hub for Indian Ports and other stakeholders, Electronic Bank Realisation Certificate (eBRC) launched by DGFT(2012) as an integrated platform for receipt and processing of bank realisation related information and GrapeNet, a web-based electronic software systems that allows shelf  to farm monitoring of quality of grapes exported to the European Union are other examples. 

 

A closer look at the measures that are already implemented would tell us that the minister has tried her best to reduce export hurdles. Compared to that, a larger share of import hurdles remain. 

 

While lack of export facilitation would have affected productivity, tax revenue, growth etc., poor import facilitation affects market access and domestic competition.  For a country with a perennial trade deficit, it would have been natural to discourage imports earlier, but not anymore, especially after the TFA commitments.  

 

As CAG report points out, India is losing Rs 42,000 crore worth of trade every year due to poor facilitation. The government may be able to salvage this in future, though questions will remain on whether it will it have a positive impact on India's trade balance or not.   

 

Meanwhile, don’t miss the commerce minister’s interview in the forthcoming issue of BW Businessworld!