Subsidies are not adversely affected

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: We are exporters of brassware handicrafts. Instead of supporting the exporters, the government has been reducing the export benefits like DEPB and Drawback rates . With the dollar depreciating against the rupee, net realisations have also decreased. Wouldn’t it affect exports?

— Manoj Jain, Hindustan Exports, Moradabad

DEPB and Drawback are not ‘export benefits’. These are mechanisms to refund the duties incurred during production of an export product. Therefore, a reduction in import duty would trigger a corresponding reduction in DEPB or duty drawback. But it is desirable that changes are made public in advance, so that exporters could take that into account while pricing for future. To guard against the fall of dollar, for short-term export contracts, you could invoice in Euro or more stable currencies. For long-term contracts, it is advisable to use a range of services offered by banks against currency fluctuations such as hedging.

We manufacture bicycle spokes. We are often asked about the ITC HS code. How can we locate it and what is its relevance?

— Satnam Singh, Prince Engg., Ludhiana

ITC HS code refers to an internationally accepted classification system of goods based on numbers. The cycle spokes manufactured by you, for example, has the number 87149220. The first two digits denote the chapter heading, which in your case is Vehicles (other than railway/ tram way and parts thereof). Subsequent classification with four, six, eight, or ten digits refines the product further. Indian customs and excise tariffs are based on the 8-digit ITC based classification. The number is indispensable while paying excise or customs duties, or to quote prices internationally, or to examine the import or export data. You could locate the ITC HS code through any customs or excise tariff manual. You could also do it online: http://commerce.nic.in/eidb/ Default.asp or http://www. infodriveindia.com/tradelaw/exim/hs/default.asp.

Could there be a negative impact of free trade agreements being signed with several countries such as Thailand and Singapore?

— P Rajendran, Swati Auto Ltd, Chennai

Trade experts are sharply divided on the benefits of free trade agreements. In India’s case, it is too early to conclude on the basis of limited experience with Sri Lanka and the recent partial FTA with Thailand. Most experts worry that India has higher import duties than most countries it is signing FTAs with. Also, there are many product categories with an inverted duty structure — higher import duties on inputs and lower on their final product. Due to higher factor costs, infrastructure constraints and inputs costs, the possibility of trade diversion is more real than what is envisaged by Indian policy makers. To be specific each product has to be analysed individually.

In the name of WTO, on one hand, governments are withdrawing subsidies extended to small industries, and on the other, reservation is also being abolished. How can small industries cope with global competition?

— Ravi Rajgariya, Ranchi

All subsidies are not bad, nor are they incompatible with WTO principles. Under the regime, it is chiefly export related subsidies or the subsidies that affect the price of export products that are not allowed. In India, the most significant such measure has been the income tax benefit under sections such as 80 HHC, which has now been done away with. That is applicable to all exporters, both large and small. No other subsidy or assistance extended to SSIs has been adversely affected. Second, the SSI reservation policy is not incompatible with WTO per se, although it is true that India lifted quantitative restrictions (QRs) on imports due to the WTO regime and pressure from trade partners.

After having removed QRs, the policy of SSI reservation also lost its value, because even if a product was reserved locally, it could be freely imported. However, it has become convenient these days, to justify withdrawal of subsidies claiming their incompatibility with WTO, which is not true in most of the cases.

With regards to the ability of SSIs to compete after withdrawal of such schemes, the fact borne out of most of studies, is that not more than 1% of SSIs have benefited by the public ‘promotional schemes’. SSIs have survived because of their inherent strengths so far and are likely to continue in future as well.

Anil Bhardwaj is secretary-general, Federation of Indian Micro, Small and Medium Enterprises (Fisme), New Delhi.