Arun Jaitley, Minister in charge of the Commerce portfolio, was in a dilemma. He had to, by tradition, present the annual ritual of tinkering with the Exim Policy. At the same time, there was no way at that early stage, he (or anybody else) could forecast the impact of the Iraq war on the world economy in general and India in particular. Therefore he had three choices: (1) postpone the announcement of the policy, (2) try and take into account the anticipated impact of the Gulf War to the best of his ability, or (3) ignore it. He really had little option but to choose the last.

Postponing the announcement of the Exim Policy was probably the most feasible option but, then, the question was for how long. Today, 11 days after the announcement was made, the physical war in Iraq may be drawing to a close and speculation is rife as to what the post-war scenario holds for Iraq and the world, but it is still too early to make any kind of forecast given that while the war may be ending, the post-war state of affairs is going to be in a state of extreme flux for quite some time to come. The economy is all about financial advantage: for a country; for a region or for specific industrial sectors and even individuals. And where money is concerned, anything can happen. Already, a number of countries which assumed a high moral ground and loudly opposed the U. S. attack on Iraq are today trying to ensure that they are not left in the cold when it comes time to share the Iraqi reconstruction pie. Politics makes strange bedfellows; but it is the bottom line that makes for the weirdest couplings.

Option two is ruled out by the same argument as for Option 1. And that leaves the third option, ignore the Gulf War and its implications and go ahead with addressing problems that were evident in the Indian world of commerce even before the war started.

Of course, there is a fourth option, which has been advocated by this column before, that is, stop this annual ritual of the Exim Policy (except for watchdog functions) and use the time and energy to promote the country’s basic industrial and agricultural infrastructure which is full of shortcomings, even non-existent in some areas, and leave the business of business to the businessmen. Naturally, from a political point of view, this is anathema. Imagine a politician (or the bureaucracy) ever considering the obscenity of de-empowering its sphere of influence and patronage.

Keeping this uncertainty in mind, Arun Jaitley has probably come out with the best policy he could in the situation. Which means he has tried to do what is attempted in almost every Exim Policy to date. Boost exports. If this is an objective that has been paramount ever since independence, so are the means adopted for achieving it both in the past and today by Jaitley. Sops, sops and more sops. What else can a Government do except to make rulings which it cannot implement fully because of political influence or give rebates, incentives and concessions? After all, it's only money, isn’t it? And its better to spend money, especially when it is not yours, than risk a political debacle.

Some of the sops that have been given to boost exports: incentives for special export zones, expansion of duty drawbacks, freedom from central sales tax, abolition of special additional duty on supplies to the domestic market by SEZ units, allowing import of second capital goods (this Pandora’s box was closed, in the past, for good reasons—more trading than actual user imports), allowing capital goods import for pre- and-post production facilities and reducing some of the rigidity of export obligations. The last two are, in effect, needed measures and probably justified.

There’s more yet: duty free import entitlement increased for the service sector (to be fair, there will also be a negative list for such imports), plans for tax breaks for the agricultural sector to boost agri export zones, free import entitlement for status holders and a host of other smaller giveaways. The base for selection of areas for tax rebates, incentives and collections is Biblical: those who have will be given more. In a twisted way, this is a policy that is pursued in many economic areas as it makes sense. What better (and cheaper) way to increase profits than to boost sales of a popular product rather than develop a new product altogether? So, focus incentives on the jewellery sector, the information technology sector, the services sector and others which are in the forefront of the exports scene. And this is what Jaitley has done, too.

In 2002-03, India gave away Rs. 25,000 crore by way of incentives to exporters under different schemes. The current Exim policy boosts this expense by a massive 32 per cent to Rs. 33,000 crore. Broadly, what it means is that exports have to increase by Rs. 8,000 crore in 2003-04 before the Government gets back what it spends by way of incentives in the current year; and by many lakhs of crores if it is looking for payback for all it spent since independence on this account. It is only after this payback that, revenue-wise, there will be any returns (to the Government that is; the exporters will be laughing all the way to the bank).

On the flip side, that India’s exports have gone up cannot be denied. No doubt, the incentives helped but much of the credit goes to the business savvy of our exporters in a competitive market. And they are operating against tremendous constraints. Lack of dependable power, water, goods transport facilities, quick credit, roads and bureaucratic hurdles. (Except for communications, none of the other industrial infrastructure can be said to be adequate). The point this column is trying to make is that had even a part of all the lakhs of crores given away as incentives been spent on upgrading the industrial and agricultural infrastructure, the returns would have been much more favourable, would have been spread over a very long period and would not require annual giveaways as even maintenance of the infrastructure would be, to a large extent, funded by the user, a practice which is current in most countries. The problem with countries like India, cursed by too much government and too little governance, is that while the people are not averse to paying for what they perceive will be profitable to them over a period of time, they seldom see development in the areas they pay for. Almost 90 per cent of the Government’s revenues go on nursing the costs of its bloated labour force and in paying interest on its borrowings. These are the prime priorities of Government spending and the Government does not hesitate to take money for this purpose that it has itself set aside for other purposes. Remember the late unlamented Oil Pool Account which was funded by the oil companies for their own benefit but was raped by the Government who took over the money for its own use and paid back the Oil Pool Account with government paper, telling the oil companies to go to the commercial market and raise funds against the bonds?

So, the next time your cable operator or telephone provider hands you a bill with service tax increased by 3 per cent, you may take pride in the fact that you are, in effect, helping the country’s export effort by giving this money away to those who have enough so that they can earn more.