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Drumbeat: Ad Buzzaar
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Wednesday, August 19, 1998
Requiem for SIL
The special-import license (SIL) scheme has lost shine, reflected in the SIL premium of barely 4 per cent. To add lustre to the scheme, the government has moved 148 restricted items of import to the SIL list. This will increase the range of imports permitted under SIL; and since exports are slack, the supply of SILs (accounting, by and large, for 4-8 per cent of the value of large exports, that is, exceeding Rs 4 crore a year) will remain limited. Theoretically, therefore, the premium on SILs should climb, and thus give a fillip to exports. However, at first glance, few of the 148 new items seem to be of significance for the domestic market: kitchen stoves, cookers, picture frames, wash basins or pocket knives will not set consumers chasing imported supplies.SILs were prized because of gold and silver imports. But once banks were permitted to import bullion on their own, the SIL premium took a beating. This is sought to be mitigated by increasing the coverage of SILs, an obviously feeble measure. The trouble is that the SIL scheme has lost mileage. Its raison d'etre was that all imports would be covered by SIL. But perish the thought of bringing imports of crude and refined products under SIL, as the consequent rise in oil prices will be severely unpopular. In any case, the policy-maker has to contend with a frowning WTO. SIL is a dead horse. Flogging it serves to pander to the lobby of exporters who have made it big. They benefit at the margin. It is the same with the recent reduction announced in the interest on bank credit. But the issue is not only one of protecting exports, but giving them a bounce. In the case of bank credit, the unaddressed question is whether exporters need cheaper credit or more (that is, adequate) credit. Why are banks limiting themselves to the Reserve Bank-determined export quota? Would banks, if allowed to charge more, move aggressively to finance production for export? And since export profits are under pressure, will mitigation with expanded SIL help, or does an export fillip require the rupee to depreciate? There are no easy answers for the intriguing loss of export enthusiasm: the domestic market does not serve as a magnet to suck in export production. It is true that the sharp currency depreciations in East Asia, Pakistan and Russia have made India's export environment difficult. Coping with this situation requires an understanding of where the manufacturer-exporter's shoe pinches. There is need for in-depth interaction, and a step-by-step build up of policy response. Solutions in the abstractwill tend to go wide of the mark.
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