Impact of Canalization and current status

The effect of canalization of import through State agencies has resulted in savings in foreign exchange on imports on account of bulk purchases as also on account of bulk shipments and in supply of raw materials to consumers in the country at reasonable rates. Other advantages are stated to be:

1. Import and distribution in a planned and phased manner.
2. long term supply arrangements
3. self generation of foreign exchange through special link arrangements
4. Equitable distribution in India through associations / consortia.

However, views of the trade and industry in respect of import canalization were not always favorable.

A major complaint of industry and trade has been regarding the pricing policy and the high service charges. It has been pointed out that in the case of some items, especially raw materials the prices charged by the STC have been excessive. Another complaint has been the absence of close liaison between industry and trade and the State trading agencies. At present, trade and industry have no means of knowing how exactly the State trading agencies are fixing their prices.

Canalization could be justified and be beneficial only in areas where two tests can be met. The first is that the organization must be equipped to work and actually work in such a manner that bulk purchases are made economically taking advantage of favorable changes in the world market. The second is that the final user must get his material at least as cheaply and as quickly as he might have if allowed to import him self.

To conclude, the observations made by the Estimates Committee may be noted:

The Committee agrees that canalization is no doubt a question of policy which only the government is competent to decide. They would, however, suggest that the canalization of import of a commodity may be done if it serves public interest. They would also stress that before canalization of import of commodities was decided upon, all the important factors, including the capacity of the Corporation, should be taken into consideration. They recommended that after canalization is decided upon, the Government must exercise vigilance to see that it served the purpose for which it was undertaken.

Canalization of Exports:

The basic objectives of State trading in exports are as follows:

It was observed in the case of certain products that there was substantial decline in the total value of export. It was thought that government trading organizations would be able to reverse this trend by concerted action.

In some cases the inter competition among the Indian exporter was resulting in lower unit value realization. Entry of State trading organization in the international market through which exports were to be canalized could result in the improvement of unit value realization.

There are certain products for which there may be a premium in the international market. By canalizing export of such products, excess profits from export operations can be mopped up by the Government.

Another objective of canalization was to eliminate under invoicing. It was found that sometimes the Indian exporters were quoting lower prices in their invoices while the world prices for such products were considerably higher. This led to the suspicion that the country had been losing foreign exchange because of the malpractices adopted by certain exporters.

Canalization was also thought of as an instrument to improve the bargaining power of Indian exporters. It was found that the principal buyers in Western Europe and the United States were large corporations and to negotiate contracts with them would require the existence of an equally large counterpart in India which would be able to supply exportable products in bulk quantities. Especially for products which originate in the small scale sector, a coordinating agency like the STC would be helpful in promoting export of such products.

With the liberalization and increase of liberal attitude by the government both imports and exports can be directly undertaken by capable enterprises directly including manufacturers. There are very few items dealt by STC.

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