PM’S Diwali gift to the economy

This festive season has been marred by dismal economic news all around. India is slipping pathetically from its high growth trajectory. Exports continue to decline. Major financial institutions and donors have downgraded the country’s growth prospects in the coming year. But the recent World Bank’s Doing Business rankings provided the spark the economy badly needed. India made impressive improvements in the 2019 rankings of Ease of Doing Business — a jump from 100 in 2017 to 63, and similar one for Trading across Borders from 146 in 2017 to 68. These results are a big achievement on the part of the government to improve the overall business climate and reduce the massive trade transaction costs that had been plaguing the Indian economy. For this, the credit squarely belongs to Prime Minister Narendra Modi who vigorously pushed for it since he took office as a part of his Make in India vision.

These improvements, if they continue, will soon create a conducive environment for the right kind of export-promoting or outward-looking foreign direct investment (FDI) to flow in. Most FDI in India so far has been inward-looking to tap the large domestic market with high tariffs and transaction costs.

Another measure of trade transaction costs is the Logistics Performance Index (LPI) of the World Bank that captures behind the border transaction costs. These are largely dependent on a country’s logistics capacity. Logistics reforms that impact transaction costs behind the border include: Transport infrastructure such as road, rail, ports, and airports; reliable communications and technology infrastructure, and quality logistics services such as transport operators. India’s ranking in LPI has also improved over the years, and stands at 44 at present.

However, we cannot afford to be complacent since we still do not compare favourably with Southeast economies as the table shows.

Future reforms in trade and logistics facilitation are recommended in the October 2018 Logistics Development Report of the Prime Minister ’s Economic Advisory Council. A slightly modified version of my recommendations are here:

Behind the border logistics n Rail tariff rationalisation and expediting commissioning of dedicated freight corridors (DFCS) n Fast track elimination of container freight stations and inland container depots by pushing direct port delivery (DPD) and direct port export (DPE) n Nudge shipping lines to institute a transparent tariff structure n Seamless and efficient road transport experience — introduce One Nation, One Permit, One Tax System n Uniform business processes. Standardise gate-in /gate-out approvals and documentation processes n 24 x 7 shipping line services to trade

Border trade facilitation n Fully facilitated trust-based clearance processes through modern risk management system n Fully-automated paperless trade environment with minimum face to face interactions n Single-window digital portal integrating all stakeholders n Monitoring of key outputs across major gateways n Physical inspection of goods to be an exception n Training of officers to operate/manage the new system, implement audit-based controls with the use of IT n Popularise advance bills of entry, authorised economic operators, DPD and DPE in the private sector n Target cargo dwell time to reach levels comparable to the successful Southeast Asian countries

Institutional framework n Establish a National Council of Logistics and Trade Facilitation outside the line ministries reporting to the prime minister n It must consist of Cabinet ministers of the ministries and departments related to logistics and trade facilitation, and chief ministers of concerned states n Private sector and trade stakeholders should be represented n The logistics wing under the commerce ministry be made a dedicated secretariat n Development of robust performance outcomes for logistics and trade facilitation n Monitor performance through an online dashboard and fix responsibilities for time-bound corrective action n Facilitate policy development and multi-stakeholder coordination n Regular publication and dissemination of data on key sectoral outputs

India should quickly implement these reforms to revive the lost export momentum and spur high, inclusive growth to create jobs. The prime minister should now with the same zeal bring down our average tariff levels to make our industry internationally competitive. These reforms, along with his recent overruling of all opposition from some of his ministers, industry, and an important part of his party, to be in the Regional Comprehensive Economic Partnership, will be his biggest personal contribution to the long overdue trade reforms.