Foreign Trade Policy set to bring stability to farm exports

Source: The Economic Times, May 24, 2012

NEW DELHI: The foreign trade policy is likely to infuse some predictability in India’s agricultural exports to counter the country’s image in global markets that it is an unpredictable supplier of farm produce.

The government’s flip-flop on cotton exports-first banned and then allowed under pressure from cotton growing states and the agriculture ministry-has cast doubts among buyers over Indian exporters’ ability to honour supply contracts.

The foreign trade policy to be announced in the first week of June is expected to address the issue.

“There is more or less an agreement between various ministries and departments that exporters should be allowed to honour the contracts that have been already established with buyers and that are backed with letters of credit, irrespective of a ban,” a commerce and industry ministry official told ET.

The policy may offer protection to contracts already signed when the government decides to impose a ban on the export of any agricultural commodity fearing shortage at home.

Other measures such as allowing unrestricted export of all major commodities under a limited ceiling is not finding favour with some ministries including food and textile, which argue that inaccurate farm output forecasts could land policy makers in trouble in case of a production shortfall.

“The policies to be announced in the FTP will only be those that find favour with all ministries and departments,” the official added.

The frequent changes in commodity export rules, especially those relating to cotton and sugar, because of differences between key ministries has drawn flak from unexpected quarters.

Earlier this month, Finance Minister Pranab Mukherjee underlined the need to meet export commitments during discussions on the Union Budget.

“We have to maintain our presence in the international market and meet our commitments,” Mukherjee said, adding that it was acceptable to export a commodity even if it has to be imported if the need arises.

Industry has been complaining that short-term policies affect decision-making. For instance, the government freed sugar exports earlier this month for the marketing year ending September, but the Indian Sugar Mills Association says the move will benefit the industry only if the exports are allowed for a longer period as only a limited quantity can be shipped every month.

Similarly, the government’s decision to lift the ban on cotton exports is subject to a periodic review.

“I think it will be too much to hope that the government will decide how much of each commodity it will allow to be exported at the beginning of a year, as our production estimates are not considered very reliable. But even if it rules that despite bans all contracts have to be respected, it will be a big step towards policy predictability,” said Ajay Sahai, director-general of the Federation of Indian Export Organisation.

Following the cotton exports ban last year, both Pakistan and Bangladesh wrote to India’s commerce and industry minister demanding that supply contracts be honoured as it affected their domestic textile industry.

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