Page 488 - ES 2020-21_Volume-1-2 [28-01-21]

External Sector 115

long as inflation was benign. However, with the headline inflation ruling above the policy band
of 4+/-2 per cent, RBI has to confront the classic conundrum of Mundell-Fleming trilemma or
impossible trinity – maintain an open capital account, stable exchange rate, and still conduct
independent monetary policy. Faced with a large BoP surplus, the RBI is faced with two options:
absorb the surplus and accumulate more forex reserves or let the ` appreciate. With inflation
largely attributed to supply-side disruptions and expected to stabilize, RBI chose to intervene in
the forex market, accumulate reserves, prevented one-sided appreciation of ` and supplemented
expansionary monetary policy. However, the sustenance of high level of headline inflation has
led to the requirement of RBI to maintain a fine balance between tightening of monetary policy
to control inflation on the one hand and stimulate growth on the other hand.
3.32 The rise in the foreign exchange reserves of the RBI has largely been due to the current
account surplus which, in turn, is largely due to contraction in imports rather than increase in
competitiveness of exports. The current account balance, in economic terms, is synonymous
with the Savings-Investment balance. A current account surplus implies a higher level of national
savings relative to investment. A rise in foreign exchange reserves also represents investments
in bonds/ securities of other countries – in effect investing abroad. A developing country like
India, needs to spend on domestic investments to spur its growth. The surplus, therefore, gives
adequate space for increased expenditure on investments in FY 2021-22.

3.33 The sustainable way for a healthy external sector balance is by enhancing the earnings
through exports – which also give a boost to economic growth. Trade facilitation is, therefore,
a priority of the Government for cutting down the transaction costs and time, thereby rendering
Indian exports more competitive.

INITIATIVES TAKEN BY GOVERNMENT TO BOOST EXPORTS

3.34 India acknowledges that in today’s interconnected global economy, efforts to streamline,
speed up and coordinate trade procedures will drive expansion of trade and help integrate
itself with an increasingly globalized production system. Foreign Trade Policy, 2015-2020 was
extended for one year i.e., up to 31 March, 2021 to lend continuity to the existing schemes.
st
Trade Facilitation

3.35 With an aim to reduce trade barriers caused by inefficient and overly burdensome
regulatory administrative procedures, the Trade Facilitation Agreement (TFA), negotiated
at WTO, came into force on 22 February 2017. A National Committee on Trade Facilitation
nd
(NCTF) was, accordingly, constituted in India in August 2016 with the Cabinet Secretary
as the Chair. A National Trade Facilitation Action Plan (NTFAP) for 2017-2020 containing
specific activities to further ease out the bottlenecks to trade was prepared. For the period
2020 to 2023, a new NTFAP is under preparation, to take additional reforms to bolster
trade facilitation efforts and transform the cross-border clearance eco-system through
efficient, transparent, risk based, coordinated, digital, seamless and technology driven
procedures.
3.36 India has been making proactive strides in TFA implementation under the guidance
of NCTF. Many of the commitments, which are otherwise due by 2022, have already been
notified to WTO as implemented viz. Establishment of a Single Window (Article 10.4), Risk