Our new trade policy must calm fears of rising import restrictions

India's new foreign trade policy, which is to be announced shortly, will be watched closely. Policy watchers will especially look to it for guidance on future policy trends on import restrictions, over which there have been some conflicting signals.

- MONTEK SINGH AHLUWALIA

The government says it wants India to integrate with global value chains and also to take advantage of the 'China plus one approach being adopted by many multinationals. It is also negotiating free trade agreements (FTAS) with important trade partners. These initiatives play well with investors.

However, they also call for greater openness to imports and this conflicts with signals emanating from reports that commerce ministry officials are working to identify "inessential imports". The concept of inessential imports brings back memories of the 1970s, when the Chief Controller of Imports and Exports used to decide whether imports needed by businessmen should be allowed. Imports were denied if they were deemed "inessential". They were also denied if they were accepted as essential, but were indigenously available. These decisions were taken on the basis of advice by bureaucrats in the Department of Technical Development (DGTD) who had no experience of working in the private sector and whose technical knowledge was hopelessly out of date.

This system was widely viewed as a major factor responsible for insulating Indian industry from competition and creating a high-cost economy that could not compete abroad and which grew very slowly. Seminal studies by Jagdish Bhagwati and Padma Desai, and later T.N. Srinivasan, had established its inefficiency, but it had no effect on the entrenched system.