Trade policy eyes 20% export growth with focus on investment, job creation

Written by fe Bureau | New Delhi | Updated: Jun 6 2012, 09:19am hrs
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Ruing the prevalent crisis period that could turn out to be very testing, contraction in global demand and a slippage in fixed capital formation in the economy to less than 30% of GDP, the government on Tuesday undertook another annual review of its five-year Foreign Trade Policy (2009-14), with the focus on spurring investment, job creation and catalysing market diversification by exporters.

Acutely aware of the high trade and current account deficits, the government also made a half-hearted attempt to curb imports by promoting import substitution and retained the 2% interest benefit for exporters in labour-intensive sectors for another year (till March 2013), besides extending it to more areas.

Although commerce and industry minister Anand Sharma, who announced the policy changes, refrained from quantifying the additional benefits to exporters, he said these were substantial and well-considered interventions given the Centre's fiscal stress.

Setting a difficult target of a 20% increase in exports to $360 billion in the current fiscal (exports grew 21% in 2011-12 to touch $304 billion), Sharma promised to bring life back to special economic zones (SEZs) by re-visiting certain aspects of the relevant policy, adding the 100% export-oriented unit (EOU) scheme, which has lost sheen after the withdrawal of income tax exemption, would be revamped in the next few months.

Later, talking to the media, the minister made his preference for another monetary easing action by the Reserve Bank of India at its policy review on June 18. When there is a free fall in manufacturing growth and most other data (including core sector and IIP) look bad, investor sentiments need to be boosted, he said, adding the central bank nevertheless had a difficult choice, given the persistent high inflation. We recognise the economy is going through a crisis period, but it (the economy) will bottom out soon. The government is working out a plan (of action), aiming that by autumn (August-September) there is a turnaround, Sharma said.

The measures announced by the minister include the following: The export promotion capital goods scheme that allows duty-free import of machines and has stood the test of time has been extended to the end of the current fiscal and widened in scope by covering more sectors/exporters and introducing a new post-export variant.

The 2% interest subvention will now be available to exporters of toys, sports goods, processed farm goods and readymade garments, in addition to sections which currently enjoy the benefit handlooms, handicrafts, carpets and SMEs.

The scrips for duty-free imports by exporters under various schemes will be allowed to be used for excise duty payment as goods are procured from the domestic market. The compliance burden on exporters from North Eastern states for the variant of EPCG scheme that allows import of capital goods at concessional import duties, has been reduced. Exporters from the region will have to meet only 25% of the export obligation norm under the scheme. In another significant step, the government allowed export shipments from Delhi and Mumbai through post, courier or through e-commerce to be entitled for export benefits. This would benefit the fast-growing e-commerce segment immensely, said Anup Pujari.

Industry and exporters enthusiastically welcomed the policy. CII president Adi Godrej said the decision to allow duty-free imports scrips to be utilised for payment of excise duty for domestic procurement would provide the much-needed thrust to upgrade levels of domestic production. He added there was a need to work on port infrastructure and freight which continues to hinder exports. Revision of SEZ and 100% EOU schemes which have been deferred should be addressed soon, Godrej said.

Sharma said the notion that a falling rupee would inevitably benefit exporters was wrong. Since exports are fed on imports for which the payment is made in rupee, a weak currency wouldn't always be to the benefit of all exporters.

The minister said the time has come for a bipartisan approach when it comes to taking major reform decisions. The minister also hinted at a quick decision on FDI in multi-brand retail stating a strong consensus has emerged among states that want to implement the policy. The only viable way, I'm convinced, is to carry out reforms by talking to state governments, taking them on board, in true federal spirit, he said.

The FTP was expected to focus on addressing India's trade deficit, which ballooned to $185 billion in 2011-12, exerting pressure on the country's current account deficit. India's imports grew by 38% to $485 billion mainly due to high crude oil prices and gold and silver. Though exports too crossed $300 billion for the last financial year, a widening trade deficit is an area of concern for the policy makers. Sharma said the slump in global prices of commodities including crude oil including in recent weeks (commodity prices declined up to 34% since January) would help curb the import bill in 2012-13.

Federation of Indian Export Organisations (FIEO) president M Rafeeque Ahmed said: The extension and widening of the interest subvention scheme is indeed great relief. The newly introduced post-export EPCG scheme will help in reducing transaction costs and provide an additional window for a large number of companies who find it difficult to meet documentation requirements of EPCG obligation.

Interest subsidy stays

* Zero-duty EPCG scheme for technology upgrade extended till March 31, 2013

* Compliance burden on exporters from northeastern states reduced to 25%

* Export benefits for shipments from Delhi, Mumbai via post/courier/e-comm

* Single bank guarantee for different exports, focus market scheme expanded

* Utilisation of duty-free scrips for buys from local mkt for payment of excise duty

* Easier export obligations for building 16 identified green technology products

* Ahmedabad, Kolhapur and Shaharanpur named new towns of export excellence