There are many reasons for this big fall. The external environment is discouraging. Declining world trade, overvalued rupee in real terms, and the falling East Asian countries' exchange rates have adversely affected the country's export competitiveness. Rising inflation, the poor quality of our products, poor packaging and marketing are equally responsible for the dull export performance.

It is difficult to believe that the health of the Indian economy has deteriorated all of a sudden. Credit-rating agencies may downgrade India for reasons best known to them, but the reality is that irrespective of the party in power, economic reforms that were ushered in 1991 is continuing. India may have to intensify the reforms process through fiscal, monetary and trade policies to attract foreign direct investments, and to streamline and simplify export-import policies. Import tariffs need to be cut down to 5-15 per cent.

Setting up of a free port at this juncture will be a befitting reply and a slap on those who harbour anti-India feelings for investment.

The establishment of a free port in India will send a green signal to everybody that India is committed to free trade as a member of the WTO, and FDI is welcome without any hindrance and fetters.

Before going into the details for establishing a free port in India, some doubts in the minds of policy-makers need to be cleared.

The performance of the existing export-processing zones and export-oriented units come to the mind of many to press their argument against a free port. But this is not correct. EPZ and EoU schemes in the country insist on specific value-addition through production and net foreign-exchange earning. These two schemes are excellent, and investors find them beneficial with less hassles. The first free-trade zone was established in India in 1965 at Kandla when the concept of importing capital goods, raw materials, parts, accessories, and technology was unknown. In fact, India took the lead in this part of the world much before the Asian Tigers. India also encourages 100 per cent foreign investment in setting up units in the zone without laying any condition like partnering an Indian company. Since then, policies and procedures have been streamlined, and many incentives and facilities have been offered to the units located in free trade/EPZs. The obligation, however, is that the unit shall be a foreign-exchangeearner as specified in the letter of intent. No trading, however, is permitted. Gradually, even domestic marketing has been permitted as notified in the exim policy. To promote export culture throughout the country, the EoU scheme was introduced on December 31, 1980, and it provided greater freedom in locating the units. Both the schemes attracted the attention of many investors, of course, largely domestic. But there were problems in marketing both the concepts abroad.

The combined performance of EPZ units and EOUs in 1997-98 was Rs 15,309.35 crore. The performance of both these schemes is quite satisfactory.

Both the schemes have been liked by investors.

The commerce ministry has an Export Promotion Industrial Park (EPIP) Scheme, since 1993-94 with a view to involve state governments in the creation of infrastructural facilities for export-oriented production. The scheme provides that 75 per cent of the capital expenditure towards creation of such facilities, ordinarily limited to Rs 10 crore in each case, will be met from a central grant to the state governments. The centre has so far approved 18 proposals for establishment of EPIPs in Punjab, Haryana, Himachal Pradesh, Rajasthan, Karnataka, Kerala, Maharashtra, Tamil Nadu, Andhra Pradesh, Uttar Pradesh, Gujarat, Bihar, Jammu & Kashmir, Assam, Madhya Pradesh, West Bengal, Orissa, and Meghalaya. While the EPIP in Rajasthan at Sitapura (district Jaipur) has since been completed, the other parks are at various stages of implementation.

The free-port concept is not to be viewed as an old concept, nor are we to fear the existence of well-established free ports in Hong Kong and Singapore.

Although the country has ushered in various trade reforms, the importance of a free port has not vanished. Various export-oriented schemes in the country can co-exist with a free port. It is wrong to conclude that with liberalisation, the relevance of establishing a free port in the country has been lost. On the contrary, with liberalised trade policies, there is greater credibility to establish a free port.

Conceptualisation of a free port has taken place long ago in the country. It is time to deliver without delay. India has been toying with the idea of establishing a free port since the 70s.

Setting up of a free port with necessary infrastructure and a liberal fiscal policy will have many advantages. There could be a significant inflow of foreign investments in industry, trade and services where investors will have full freedom to establish enterprises. Investments could be induced into the banking and insurance sectors with the establishment of off-shore banking and financial services in a tax-free environment.

Foreign exchange can be earned in the form of port charges by providing a free transit port (with bunkering and ship-repair facilities). Creation of entertainment and recreation infrastructure and duty-free shopping centres encourage the flow of tourists, which will result in substantial foreign exchange.

The two free ports in the region at Hong Kong and Singapore, are flourishing. But in both these cases, there are certain limitations for future growth.

Now that the Indian economy has been reformed to a large extent, and the country is no longer a closed economy, it has the potential to emerge as an important manufacturing base, and it can also serve as a good hinterland for exports from the proposed free port. Many countries have succeeded in attracting investments by establishing free ports/free zones.

Hong Kong and Singapore are success stories, and India can draw lessons m them.

India is not yet out of the woods. The reforms ushered in during the past seven years are laudable, but there is need to increase their pace to strengthen the Indian economy. India's exports have to record a quantum jump to achieve 20 per cent growth.

The establishment of a free port in India will send signals to investors all over the world that India is for free trade and free enterprise, and is keen to pursue forward-looking and growth-oriented policies.