Produced below is an excerpt from an essay published in The Indian Libertarian, January 1959, titled “Auctioning Import Licenses” by B.R. Shenoy. It explores the inefficiencies of India’s import licensing system and advocates for a shift towards auctioning these licenses to generate government revenue and curb corruption.
Import licenses today are issued to Established Importers, Actual Users, and government or governmental establishments. Apart from illegal payments made to corrupt officials, the licenses are issued free of charge even to private parties. But, because of the wide disparities which exist between the internal prices of imported goods and their landed costs (i.e., the external prices multiplied by the rate of exchange), import licenses fetch phenomenal prices in the market; these prices may vary from 50% to 500% or more of the face value of the licenses, depending upon commodities. The recent cut in imports has driven these prices up. You cannot get rich quicker today than by getting import licenses issued in your favor. An appropriate license may bring lakhs of rupees, literally, overnight. This operation, which is remarkably simple if we have the right men in the right places in the right ministries, is even more profitable than gold smuggling (which yields a gross profit of 73% on each act of smuggling), involves much less work, and carries next to no risks.
Indian imports on private account averaged per year during the past two years Rs. 743 crores. Open General Licenses being restricted to a few items of imports from Pakistan, virtually the whole of these imports came under specific import licenses. If the auction were to fetch an average price of 45-55% of the face value of the licenses, it may bring in a revenue of Rs. 300-Rs. 400 crores. But, perhaps, rather than upset all vested interests at once, it may be expedient to invite tenders, in the first instance, for the licenses which are now issued to Established Importers. The market prices of these licenses are among the highest, and the returns on them may amount to Rs. 200 crores per year. The amount may be, as well, larger considering the accounts of the prices offered for the licenses for certain commodities. From the experience gained, the area of auctioning may be extended to cover all private imports.
This device is vastly better than the extension of state trading to imports, which has been suggested by some. State trading here would be avoided considering the scarcity of personnel with the necessary talent, knowledge, experience, and, above all, integrity. Auctioning will bring to the national exchequer the cream of profits, while leaving undisturbed the existing private enterprise machinery of import trade.
These windfall receipts would represent 60-80% of the annual average of the tax revenues of the Centre for the past two years. They may not cause any undue strain on the national economy. Insofar as the proceeds of the sales of the first category of licenses are concerned, it would amount to no more than a transfer to the national exchequer of the ill-merited earnings of the anti-social elements among the public and in the administration. If care is taken to ensure that monopolist purchases of the licenses do not take place—this may be done by inviting tenders for the licenses and ensuring wide distribution of the accepted tenders—it may not amount to any new burden on the consumers and the users of import goods, as the auction of the licenses would affect neither the effective demand nor the market supply of import goods.
It would, however, put a stop to the concealed subsidies of the industrialists, as the cost of the import goods would now amount to not merely landed costs, as formerly, but landed costs plus the prices paid for the import licenses. But subsidization of industries should be done on a more rational basis than through the issue of import licenses; it should not be mixed up with the adoption of corrective measures for the balance of payments difficulties of the country.
The crux of India’s payments problem is, on the one hand, to bring about a shift-back to production for export from production for the home market and, on the other, to eliminate the vast gaps between the landed costs and market prices of import goods and between the internal and the external prices of gold. Stabilization of the economy is not possible without this two-dimensional desideratum. The auction of the import licenses would equate domestic prices of import goods to their external prices; the shift-back in production, which is necessary on a considerable scale, may be achieved by drawing on the auction proceeds of import licenses to subsidize exports. This would serve the ends of economic justice as the ill-merited gains of the import trade are acquired mainly at the expense of the export industries.
The export promotion measures we have so far adopted, or have under active consideration, include relief from export duties, “draw-backs,” rebates on customs and excise duties, and remission of sales tax on exports, rediscount of export bills at preferential rates, freight concession on Railways, supply of steel at concession rates for export production, wider coverage of insurance risks than hitherto, provision of certain administrative facilities to exports, and so on.
Read the complete text here. (Page I – Indian Libertarian Supplement)
