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The Importance of Being Importer Friendly

By Ashwini Tallur July 27, 2016


By Ashwini Tallur, National Law University Jodhpur

PART I

We all realize the importance of trade and commerce and most of us are aware of the World Trade Organisation (WTO), the only global international organization dealing with the rules of trade between nations[1], formed in 1995. The WTO replaced the General Agreement on Tariffs and Trade (GATT), an agreement signed in 1947. The replacement now has four major documents: a major revision of the original GATT, General Agreement on Trade in Services (GATS), The Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS), and the Dispute Settlement Understanding (DSU).

Until then, the GATT set out important rules governing trade between countries, and had been the forum for negotiating lower customs duty rates and other trade barriers. Since 1995, the updated GATT has become the WTO’s umbrella agreement for trade in goods.[2] Article VIII of the GATT 1995, in particular caught my attention. You can read the Article here. The Article basically states that countries that are a part of the WTO, must ensure that the importers or exporters must not be subject to too many burdensome formalities and requirements.

This was when I thought, how easy is importing for our own importers? The GATT seeks to prevent one country’s protective measures against another. But what about the importers within the same country? There are importers I know, who, despite living in Kolkata, which is closer by sea to Hong Kong (where they import goods from), route it through other cities, like Mumbai, despite the round-about route, simply because it is less burdensome, faster, and people are generally more eager to work.  So which states are most businessman friendly, especially when it comes to importing?

Let us look at the overall figures. Gujarat stands at the top of a number of lists[3]. According to the Economic Freedom of the States of India Report- 2013, Gujarat is not only the freest state, but it has also registered the fastest rate of improvement with an average growth of 12%.[4] In the same report in 2005, its overall score was 0.46 (Rank 5), which is 0.65 (Rank 1) in 2013. There is also a very wide gap between Gujarat and the second in rank, in the report (Tamil Nadu, with a score of 0.57). In a report by the CLSA[5], the reasons that Gujarat seems to be doing so well is that: firstly, unlike the other states who jumped from an agrarian economy directly to a service sector centric economy, Gujarat made sure that it has many manufacturing industries, which provide for large scale employment. Even so, it did not ignore its agrarian sector. The report goes on to say, that agriculture contributes 13 per cent to Gujarat’s GDP and supports 53 per cent of the population. Yields in food grains are almost double the country’s average. Secondly, its long coastline and entrepreneurial nature of its people are certainly a plus. Thirdly, its dependence on funds from the centre has been low, with 84% of its revenue coming from taxes. Also, the report point out, Gujarat does not ignore the expenditure on medical and educational facilities by replacing it with social security in welfare, a mistake made at the national level.

In the Economic Freedom report, Gujarat and Tamil Nadu are followed by Andhra Pradesh, Haryana and Himachal Pradesh.

It is believed that Tamil Nadu is ranked so high up, because of the effective legal machinery. With a low rate of dacoity and robbery reported in 2012 (no cases, according to the National Crimes Records Bureau); people in general afraid to break the law; bribes being low, and sometimes nil; zero tolerance for communal violence; and swift arbitration and conciliation, Tamil Nadu, many believe[6], deserves to stand at Rank 2. However, its points get docked when it comes to its high rate of labour disputes and severe shortage of power, to which there seems to be no solution so far.

The regulation of labour and business is a very important factor for a businessman, which is one of the three factors the Economic Freedom Report looks at.[7] Gujarat has been rank 1 since 2005, till 2013[8]. Tamil Nadu, Himachal Pradesh, Uttarakhand, Karnataka, Maharashtra and Kerala follow respectively.[9] Once again, there is a very large gap between the score of Gujarat and Tamil Nadu, making Gujarat the most conducive for business in this category, without question. According to the report, there has been a sharp decline in man-days lost due to strikes, higher market wage rates, and a decline in pendency of cases.[10]

As for Andhra Pradesh, which ranks 3rd in the report, it seems to be by virtue of it being a large base for Agro and Food Processing (especially since the state accommodates seven different agro-climatic conditions); the “mineral house of the country”; the “bulk drug capital” of the country, with 1/3rd of the country’s Bulk Drug Production; and a huge IT economy.[11] However, with the state being split into two,[12] we have to see how things will work out for each of the two new states.

In my next blog post, I will be concluding my article after looking at how individual cities fare at treating importers.

 

PART II

In my previous blog post, I discussed the import-friendliness of states. Let us now look at the performance of individual cities and where India stands as a nation, and why all this matters.

When it comes to ease of importing in cities, Bhubaneswar seems to be the friendliest city, according to the Doing Business Report by the International Finance Corporation and the World Bank[13], with 16 days taken to import goods.[14] Ahmedabad does come a close second with 18 days taken to import. The costliest city according to the report is Jaipur (at US$1,384 per container).[15] A clothes merchant based in Kolkata, who wishes to remain anonymous, told me that Chennai and Vishakapatnam are also very friendly when it comes to imports. He categorically states that Kolkata is quite hostile to importers. The Kidderpore port in Kolkata, for instance, is badly maintained and under-utilised. There seems to be an unwillingness to create a business friendly environment, he said, labeling the attitude as "babu-giri".

India doesn’t seem to fare that well in the world, being ranked 48 according to Bloomsberg Ranking[16]; Rank 98 according to Forbes[17]; and Rank 134 in the Doing Business Report 2014[18]. The Doing Business Report puts India at Rank 132 for ease of trading across borders, a 3-Rank fall from the previous year. It takes 11 documents, on an average, to import something into India, compared to 10 for the South Asian countries and 4 for the OECD.[19] It takes an average of 20 days to import something into India, while it takes on 10 days for the OECD.[20]

India’s economic freedom has undoubtedly increased since the 1990s, yet India’s ratings remain low on the global index. As the Economic Freedom report rightly states, as India opens its national markets to international investment and commodity flows, it cannot afford to constrain its own entrepreneurs. India is a very centralized country, especially compared to China.[21] Yes, we use the phrase “centre-state relations”, but as the report has correctly pointed out, it “reflects a patronizing mindset, suggestive of a centre and a periphery”. Perhaps this is a legacy of our independence struggle, one which we seem to have inherited unknowingly, due to the predominance of a single party back then.[22] Ironically, the “Centre” so far seems to suffer from a lack of interest and/or ability to change things, thus putting the burden on the “states”.

With the reported increase in imports[23], it is high time that the “centre” learns something from the leading states and implements the same. With US$489 billion worth of imports, India is ranked the 10th biggest importer in the world, by the WTO, accounting for 2.6% of the world’s imports.[24] You can see how much of each product India imports here. You can also check out the import tariffs for agricultural products here.

The WTO realizes how important it is to protect its members from harassment in the form of delays and unnecessary rules. It is time we realize the same. Is the proposal of letting the Major Ports decide tariff rates going to serve this purpose?[25] Maybe, maybe not. Perhaps, with the ex-CM of the leading state of Gujarat as our new Prime Minister for the next sixty months, we might see some improvement for the importers. The Modi government promised the country: achhe din aane waale hain (Good days are going to come). Only time will tell how good the days of the future are going to be. We can only hope and wait for them to fulfill this promise of theirs.

[1] As per the website, www.wto.org.

[2] http://www.wto.org/english/thewto_e/whatis_e/inbrief_e/inbr03_e.htm

[3] See, for instance this, this or this. You could also read this article, which gives five things that make Gujarat different from other states.

[4] Economic Freedom of the States of India Report- 2013, Bibek Debroy, Laveesh Bhandari, Swaminathan S. Anklesaria Aiyar. Available at http://www.cato.org/sites/cato.org/files/economic-freedom-india-2013/economic-freedom-states-of-india-2013.pdf.

[5] See http://www.business-standard.com/article/economy-policy/five-reasons-why-gujarat-is-different-from-other-states-clsa-112101603014_1.html for five things that make Gujarat better than the other states.

[6] See http://www.rediff.com/money/slide-show/slide-show-1-column-why-tamil-nadu-is-one-of-the-best-states-for-doing-business/20131209.htm#1

[7] The report looks at the size of the government: expenditures, taxes and enterprises; legal structure of the state; and regulation of labour and business in the state, and awards points accordingly.

[8] With a score of 0.87.

[9] Scores: 0.51, 0.46, 0.46, 0.44, 0.43, 0.42 Respectively. See Table 1.6 of the Report.

[10] Page 34 of the Report.

[11] Read the detailed report by Commiserate of Industries and FICCI on how Andhra Pradesh is a great state for business here.

[12] See http://www.business-standard.com/article/politics/telangana-foundation-day-on-june-2-114030500314_1.html.

[13] See http://www.doingbusiness.org/ in general, and http://www.doingbusiness.org/data/exploretopics/trading-across-borders/india in particular.

[14] See how the time and all related parameters are calculated here

[15] However, this could be because the report takes into account goods imported by sea transport.

[16] See http://www.bloomberg.com/visual-data/best-and-worst/best-for-doing-business-countries.

[17] See http://www.forbes.com/best-countries-for-business/list/.

[18] See http://www.doingbusiness.org/rankings.

[19] See http://www.doingbusiness.org/data/exploreeconomies/india#trading-across-borders

[20] The number takes into account: Documents preparation; Customs clearance and technical control; P orts and terminal handling; And Inland transportation and handling. The documents considered are: Bill of Entry, Bill of Lading, Cargo release Order, Certificate of Origin, Technical standard Certificate, Commercial Invoice, Foreign Exchange Control Form, Inspection report, Packing list, Product manual and Terminal handling receipts.

[21] Bardhan, Pranab (2010). Awakening Giants, Feet of Clay, Assessing the Economic Rise of China and India. Oxford University Press, in the Economic Freedom of States in Inida Report (Page 73).

[22] For more on this, see Report of the Commission on Centre-State Relations, available at http://interstatecouncil.nic.in/volume1.pdf

[23] India's imports gained while exports grew negligibly from FTAs: ASSOCHAM study. Article available here.

[24] See Appendix table 3 here. Also see a detailed report on India’s imports and exports, by The Guardian here.

[25] http://articles.economictimes.indiatimes.com/2014-02-02/news/46923648_1_major-port-trusts-tamp-new-tariff-guidelines

Tags: port , importer , business , clothes merchant , businessmen , World Trade Organisation , WTO , General Agreement on Tariffs and Trade , GATT , General Agreement on Trade in Services , GATS , Agreement on Trade Related Aspects of Intellectual Property Rights , TRIPS


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