FE Editorial : Another interim effort

Written by The Financial Express | Updated: Feb 28 2009, 05:44am hrs
A vote on account-cum-interim Budget was necessary for this government to function until a new government is in place. Thanks to bad law, bad economics and even worse politics, the vote on account has now been almost converted to a full-fledged Budget. There was no such necessity for an interim supplement to foreign trade policy. The interim trade policy gives us data that doesnt add much to analysis and some sketchy policies. That the export target for 2008-09 is down to $175 billion from $200 billion was already known. Export growth (of goods alone) at 13.2% in dollar terms for April-January doesnt look that bad, but thats because respectable growth occurred in the period before October 2008. Performance in 2009-10 may be worse. There is also no quarrel with, and no new information from, the proposition that labour-intensive sectors like tea, rice, marine products, gems & jewellery and garments & handicrafts have been hit. The commerce ministry-compiled job loss figure is 1 million. The Federation of Indian Export Organisations has said 10 million. We know that around 6.5 million are directly employed in exports and with indirect employment included, total export-related employment is around 15 million.

What we know most is that revival of export growth is contingent on demand (not just in the developed world) reviving and the exchange ratetheres little the commerce ministry can do. Recognitions like Surat as a town of export excellence for diamonds, Bhilwara for textiles and tinkering with thresholds for premier trading house status only ease procedures for identified dispensations. Procedures for exports and the process of claiming incentives should be improved across the board, not selectively. Ditto for import liberalisation. Decisions on not insisting on export realisation within six months and extending export obligation timeframes for EPCG could have been announced in the manner that earlier changes in duty drawback/DEPB rates were. On the rates, at a time when other countries (read: the US) are treading dangerously close to flouting WTO norms, one can perhaps ignore the point about these rates often being untenable in disputes. Remember also that the domestic indirect tax regime is still not unified. The single goods & services tax (GST), which now probably stands postponed beyond 2010, is required to make export incentives defensible and to establish the right countervailing duties on imports. Once growth recovers, the issue of mandatorily requiring export proceed repatriation should be revisited, even if incentives are today linked to this. Until then, policy tinkering wont help much.