 FOREIGN TRADE

A MAJOR constraint on the Fourth Plan is the availability of external resources. A net inflow of external assistance of the order of Rs. 1,850 crores is postulated during the Plan period, as compared to a net inflow of Rs. 3,500 crores (in post-devaluation rupees) during the Third Plan. With this greatly reduced net external assistance and a substantially larger investment programme during the Fourth Plan, the balancing of the external account would call for much greater efforts than in the past in the direction of both export expansion and import savings and substitution.

EXPORTS

5.2. India's exports were virtually stagnant during the decade 1951-60. Total exports averaged Rs. 606 crores a year during the First Plan period and Ps. 609 crores a year during the Second Plan. In contrast with this stagnation, exports showed a striking expansion during the first three years of the Third Plan. There was, however, a slowing down in the growth of exports in the fourth year. In the last year exports recorded a small fall of Rs. 10 crores as compared to the previous year, due mainly to the bad harvest and Pakistan-India hostilities. The level of exports rose at an annual compound rate of 4.1 per cent from Rs. 660 crores in 1960-61 to Rs. 806 crores in 1965-66.

5.3. There was a significant change in the Commodity composition and directional pattern of exports during the Third Plan. The share of the three principal traditional commodities-tea, cotton textiles and jute manufactures-in total exports declined from 48 per cent to 44 per cent. There was, however, a substantial growth in a number of export commodities like oilcakes, fruits and vegetables, sugar, iron ore, iron and steel, handicrafts and engineering goods. Moreover, several new export products principally in the engineering and chemical fields emerged for the first time. The trends in exports of the principal commodities during the Third Plan are shown in table 1.

5.4. There was a considerable increase during the Third Plan in exports to East European countries, especially the U.S.S.R. and also a sizeable increase in exports to the U.S.A. Exports to West European countries recorded a small decline owing to a reduction in exports to the U.K.

5.5. The dynamism in India's exports during the Third Plan period is attributable to the increase in the production base, both agricultural and industrial, and the generally favourable climate of international trade. In addition to these factors, a significant role was played by institutional, fiscal and other measures adopted as part of a deliberate and conscious policy to promote exports. The institutional frame work for promoting exports was broadened and strengthened through the setting up of the Board of Trade, Export Promotion Councils and the Minerals and Metals Trading Corporation. A major factor was the operation of special export promotion schemes providing import entitlements against exports in respect of a number of manufactured and processed products, A variety of fiscal measures were also adopted to bring about an expansion in exports. incentives in the form of drawback of import duty and refund of excise duty were extended to a number of commodities. A Marketing Development Fund was established to provide grants to the Export Promotion Councils for the exploration and development of foreign markets for export commodities. A scheme for the issue of tax credit certificates to exporters coveting 22 items was introduced.

Devaluation of the Rupee

5.6. In order to bring domestic prices in line with external prices, to restore and enhance the competitive power of exports, and to provide a solution to the country's trade and payments problems, the per value of the rupee was reduced by 36.5 per cent on June 6, 1966, involving a rise of 57.5 per cent in the price of foreign exchange in terms of Indian rupees. Along with devaluation, the existing special export promotion schemes providing import entitle- ments against exports and the scheme for tax credit certificates were abolished. Moreover, in order to protect the unit values of exports in terms of foreign exchange, export duties were levied on a number of commodities, mostly agricultural commodities and agriculture-based manufactures. A variety of additional measures were taken to promote exports. A liberal import policy was announced for 59 priority industries, including a number of export-oriented industries. A new import replenishment scheme enabled registered exporters to obtain raw materials, components and spares against export of specified products. It was decided to provide cash assistance for exports of selected products with a good export potential. A scheme for the supply of steel at international prices to exporters of engineering goods was announced. Imports of some raw materials were placed under an Open General Licence.

Annual Plans

5.7. Exports during 1966-67 aggregated to Rs. 1157 crores ($ 1588 million) which were lower by 8 per cent than exports during 1965-66. In the subsequent two years exports rose to Rs. 1199 crores and Rs. 1360 crores respectively. The trends in exports of principal commodities during these three years are shown in table 1.

5.8. The decline in exports in 1966-67 was mainly due to drought conditions and the consequent supply constraints on export of agricultural

FOURTH FIVE YEAR PLAN

commodities and agriculture-based products, namely, raw cotton, oilcakes, tobacco, spices, tea, coffee, cotton piece goods and jute manufactures. Other contributory factors were the temporary dislocation of trade caused by devaluation, depressed demand conditions in the world market and the time taken by trade in adjusting itself to the new export promotion measures. Commodities not affected by domestic supply limitations such as leather and leather manufactures, fish and fish products, iron ore and iron and steal recorded increases in exports.

5.9. Exports, amounting to Rs. 1199 crores in 1967-68. recorded a growth rate of 3.6 per cent in contrast with a decline of 8 per cent in the preceding year. A good harvest eased the supply constraints and led to an expansion in exports of tobacco, raw cotton, coffee, mill-made cotton textiles and jute manufactures. There was a marked increase in exports of tea, iron and steel, engineering goods, iron ore and hadicrafts.

5.10. Exports recorded a striking increase in 1968-69. At Rs. 1360 crores, they represented an all-time high and showed a rise of as much as 13.5 per cent over the previous year. The bulk of this expansion was accounted for by substantial increases in a number of non-traditional items such as engineering goods, iron and steel, iron ore and chemicals and allied products. Among other items which showed increases were handicrafts, leather and leather manufactures, fruits and vegetables, oilcakes and cotton piecegoods. However. the other two principal export items, tea and jute manufactures, recorded a substantial decline in export value. The expansion in exports of non- traditional items was partly due to the slack in home demand and to the export promotion measures.

5.11. The increase in over all exports during 1966-69 was almost wholly on account of exports to Asia and Oceania. The increase in exports to this region was in turn mainly due, to larger exports to CAFE countries. Exports 'to East European countries also registered a small increase during the period while exports to the Americas, West Europe and Africa showed small decreases. In the case of West Europe, the decline in exports was mainly due to a fall in exports to the U.K.

5.12. Subsequent to the devaduation of the rupee, further modifications, adjustments and extensions in export promotion policies were made. These took the form mainly of adjustments in export duties and in cash assistance, modifications of import facilities for exporting units and industries and strengthening of credit arrangements for exports. Reductions, rationalisations or abolition of export duties were made from time to time in the light of inter- national demand conditions and the competitive position of Indian export products in world markets. The rates of cash assistance were increased for a number of products and several new products were brought within the scope of the cash assistance scheme.

5.13. The import policy for 1968-69 was oriented to provide special import facilities for exporters. Units in the priority industries which had exported at least 10 per cent of 'their production in 1967-68 were given facilities to import their requirements from sources of their choice. Ten priority industries were selected on the basis of their export potential and it was laid down that units engaged in these industries would have to export 5 to 10 per cent of their production, failing which they would be liable to cuts in their import entitlements.

5.14. In the field of export credit, the Reserve Bank of India introduced a scheme under which preferential rates of discount were provided for refinancing of pre-shipment credits granted by the commercial bank to certain categories of exporters at concessional rates. It also provided a subsidy to banks on export credit granted by them in the shape of packing and post-shipment advances.

Export Programme

5.15. Exports in 1969-70 are estimated to be around Rs. 1400 crores, representing an increase of Rs 40 crores or about 3 per cent over 1968-69. Subsequently, they are expected to rise progressively during the period of the Fourth Plan and reach a level of around Rs. 1900 crores in 1973-74, showing a rise of Rs. 540 crores over the base year (1968-69) level of Rs. 1360 crores. This would mean an increase of about 40 per cent in exports over a period of five years of a compound rate of growth of 7 per cent per year. On this basis. exports during the Fourth Plan period as a whole are expected to aggregate to Rs. 8300 crores.

5.16. The estimates of total exports from year to year during the Fourth Plan have been built up on the estimates relating to individual export commodities; and the later have been worked out on the basis of (a) the likely growth of domestic production and consumption in individual commodities, (b) the expected trends in world market conditions, and (c) the commercial policies of importing countries.

5.17. In regard to export commodities by economic categories, among ores and minerals, iron ore is the only commodity that is expected to record a substantial increase in export value. In the category of manufactures, the largest increases are expected in engineering goods, iron and steel, chemicals and allied products and footwear. These Commodities are generally regarded as "new manufactures". Among other manufactures, sizeable increases in export value are expected in the case

FOREIGN TRADE

of leather manufactures (excluding footwear) and jute manufactures. In the group agriculture and allied products, the main increases are postulated in fish and fish products and cashew kernels.

5.18. An essential pre-condition for the fulfilment of the export programme is the realisation, according to schedule, of the production target set in the agricultural, mineral and industrial sectors. More- over, while care has been taken in setting the production targets to allow in general for an adequate or normal growth in domestic consumption concurrently with the postulated growth in exports, in the case of some commodities it may be necessary to restrain the growth of consumption through fiscal or other measures in order to make adequate surpluses available for export. Since export promotion is a dynamic process which takes place under constantly changing circumstances- internal as well as external-there is need to keep the requirements of exports constantly in view in licensing additional industrial capacity as also in permitting diversification of capacity. Another important pre-condition of success in achieving the export goals during the Fourth Plan is the maintenance of reasonable internal price stability. In the interest of promoting exports regulatory or restrictive measures in the form of outright bans or export quotas should be kept to the minimum, specially in the case of primary agricultural products, unless there are overriding considerations to justify such action.

5.19. On the front of export policy designed specifically to provide facilities and incentives to exporters, it is of primary importance to ensure stability ill the structure that has been evolved over the years since devaluation. At the same time it is necessary to provide a measure of flexibility in the basic framework so that the problems created by changes in conditions abroad or in the domestic economy can be effectively met.

5.20. Competitiveness in cost and quality is an important pre- requisite of success in the export effort particularly in the case of manufactured products. Constant and determined efforts will, there- fore, need to be made for improving efficiency and reducing costs. Attention will have to be paid to the improvement of the quality of export products in line with technological developments abroad.

5.21. Improvement in port and shipping facilities is of vital importance in the promotion of exports, particularly of bulk commodities. The Fourth Plan provides for the development of major ports and their modernisation and re-equipment. Handling, loading and berthing facilities at the ports are being improved. The development of outer harbour facilities in major ports at strategic intervals on India's coastline will improve bulk handling and attract deep draft heavy tonnage ships. Special attention will also be given to the enlargement of the shipping tonnage in view of the growing volume of foreign trade.

5.22. In the case of major traditional exports like cotton textiles and jute manufactures, adequate provision has been made for modernisation and rehabilitation of manufacturing units as part of the export promotion effort. Similarly, funds have been provided for replantation of tea bushes and modernisation of processing and packaging facilities. In the case of certain traditional items parti- cularly those facing competition from synthetics, further programmes for industrial research will be necessary. For increasing exports of non-traditional items, special emphasis will be placed on wider publicity and adequate after-sale service. Efforts for the location and development of export markets will have to be intensified. Technical and financial assistance, along with deferred payment terms, for facilitating exports of machinery and equipment to developing countries will be strengthened.

5.23. The present institutional framework for export promotion is sound and has contributed to the development of exports. It may, however, be necessary to strengthen from time to time certain constituent elements of this structure as the need may arise. In particular, it is visualised that the public sector will play an increasing role in export trade Moreover, since there has been a substantial expansion of the public sector in the industrial fields notably metallurgy, engineering and chemicals, it is expected that exports from public sector enterprises will increase progressively. The role of cooperative organisations of proved ability in the field of export trade will be encouraged.

IMPORTS

5.24. Except during the year of the Korean War, 1951-52. imports averaged Rs. 662 crores during the remaining four years of the First Plan. The level of imports was substantially higher during the Second Plan period when it averaged Rs. 976 crores a year.

5.25. During the Third Plan period, there was a sustained rise in the level of imports except in 1961-62 when imports fell by Rs. 33 crores to Rs. 1107 crores. Imports rose progressively during the next four years. reaching a level of Rs. 1409 crores in 1965-66. Over the Third Plan, imports averaged Rs. 1245 crores a year.

5.26. The trends in imports (luring the Third Plan period by principal commodities are shown in table 2. The major increases in imports were in cereals and cereal preparations, fertilisers and ma- chinery, spares and components. Cereals and cereal

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preparations, which were imported largely under the PL 480 programme, were an important component of total imports. Imports of fertilisers (crude and manufactured) recorded an almost continuous rise. Imports of iron and steel and non-ferrous metals, taken together, declined during the first two years but rose in the subsequent years. Imports of mineral fuels, lubricants and related materials, which showed an upward trend during the first three years of the Plan, declined in the last two years as a result of increased internal production. Imports of a number of other commodities such as chemical elements and compounds, medicinal and pharmaceutical products, dyeing, tanning and colouring materials, rubber, synthetic yarn, raw cotton and raw jute recorded significant declines as a result of the efforts made to replace imports by domestic production and the restrictive import policy followed during the period. Imports of machinery, spares and components showed a strong upward trend. In the case of transport equipment, on the other hand, the average level of imports was slightly lower than the level recorded in 1960-61.

5.27. As for the directional pattern of India's imports during the Third Plan there were substantial increases in imports from the Americas and East Europe. The U.S.A.'s share in India's imports rose from 28.7 to 30 per cent. The share of East Europe increased from 3.9 to 11.1 per cent.

FOREIGN TRADE

Devaluation and Import Liberalisation

5.28. Mention has been made of the devaluation of the rupee in June. 1966 and of the related measures to promote exports. On the side of imports, the principal policy measure taken with devaluation was the announcement of a liberal import policy for 59 priority industries under which arrangements were made to meet their requirements for raw materials, components and spares in full (initially for six months). The import policy for small-scale industrial units making the same products as the priority industries was also substantially liberalised. The import policy introduced in 1966-67 was continued in its basic essentials in the following two years. The policy for 1967-68 was made need-based and production- oriented and provided for the continuation of the preferential treatment for the 59 priority industries. The policy for 1968-69 placed 260 items or groups of items on the banned list since these commodities could be supplied in sufficient quantity from domestic production. Imports of another 197 items were allowed to actual users on a restricted basis as the domestic production of these items had increased substantially.