Economic growth-V

Economic growth=5 While there should not be much disagreement concerning the nature of import items to be subjected to control in the context of planned development, there may be differences concerning the method of control to be adopted. Broadly there are three alternative methods of import control tariff, quotas and State trading, and all these are practised in varying degrees by the developing countries.

Choice between these methods is not always a matter of abstract principle; it is conditioned by the social and political environment of a country and also by the degree of efficiency of its administrative machinery. Tariff surely is a method which is least offensive to the liberal principle and, provided it is adjusted properly, it is also a method which prevents the emergence of excess profit in the market for imported goods. But its effectiveness is uncertain. What is that system of tariff which in our own country, for example, would prevent the inflow of luxury goods such as cars, refrigerators or air-conditioners beyond what would be warranted by the degree of foreign exchange scarcity relatively to the plan?

Even the present 150 per cent duty on cars would surely be too low for the purpose if it were not supplemented by direct control. On the other hand, the quota system based on licenses to ‘approved dealers’, though apparently effective in limiting imports to a prescribed level, is discriminatory, and it leads to all kinds of corruption in actual practice, often frustrating the very purpose for which it is supposed to stand. Cases of surreptitious dealings are not uncommon in our own country, as reports go, and the situation must be the same in other countries as well where the quota system is in operation. So economic growth is important.

It is often suggested that licences should be auctioned to highest bidders, so that the difference between the internal market price of the imported goods and its landed price might be reduced to a minimum. The device seems commendable and, although it smacks of the much maligned system of multiple exchange rates, there is no reason why the IMF or the GATT should not permit it, having regard to the peculiar circumstances of a developing economy. After all it is only a refinement of the quota system, meant for internal cost-price adjustment; it does not open up new avenues of discrimination. Indeed it amounts to a combination of the quota system with high tariff, with this difference that whereas the level of tariff is fixed by the state and cannot be readily adjusted to the market situation, the price of an auctioned import licence is fixed by competitive dealers and is dictated by market forces. So economic growth is important.

At the same time the policy of auctioning licences under a quota system is not essentially different from State trading. Both operate within a prescribed quota, and in both the excess of the internal market price over the landed price of the imported goods is appropriated by the State. Unless, therefore, the State not only prescribes the quota but also wishes to control the internal market price of the relevant goods, the difference between the two systems turns out to be one of form. In the one case the State takes the margin from traders buying import licence, in the other it is recovered from the ultimate buyers of imported goods. So economic growth is most important.

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