Trade strategy moots tariff cuts, rupee depreciation

New Delhi, Jan 30: | Updated: Jan 31 2002, 05:30am hrs
A lowering of customs and excise duties on key inputs required for exports, a cheaper rupee, service tax rebate and a comprehensive value-added tax system are among the 15 major macro policies advocated by the Medium Term Export Strategy for 2002-07 unveiled here on Wednesday by Union commerce and industry minister Murasoli Maran.

The strategy focuses on 220 identified commodities grouped in sectors and on 25 potential markets in order to raise India’s share in the world trade from 0.67 per cent at present to at least one per cent in the medium term and achieve a compound annual export growth rate of 11.9 per cent during the period 2002-07.

Translated in value terms, the projected growth will result in a foreign exchange realisation of $80 billion, up from about $ 46 billion in 2000-01.

Many of the suggestions assume significance in the context of the forthcoming Union budget. The policy advocates a “strategic policy” aimed at improving the “competitiveness of Indian exports”.

Key elements of this strategy include: (i) maintaining the real effective exchange rate of the rupee (REER) at a “level appropriate for ensuring price competitiveness of exports”; (ii) tariff policy which achieves lower average import tariffs benefiting exports through cheaper cost of inputs by shifting to a 8-digit nomenclature for tariffs; and (iii) balancing of overall lower tariffs by protecting sensitive items which are likely to be affected due to removal of quantitative restrictions (QRs).

The policy document also states that export schemes need to be devised in such a manner that help the exporters get back taxes borne by them efficiently and quickly. “Schemes of reimbursement need to be transparent and comprehensive to work effectively. Such a system is possible if a comprehensive VAT system is introduced at every level. Lower customs and excise duties for major inputs needed for exports can minimise the need for duty drawback.”

Addressing a news conference, the commerce minister said that the strategy also aims at providing an effective and responsive trade defence mechanism such as continuation of anti-dumping and safeguard duties to provide protection against unfair trade practices, evolving WTO-compatible policies by extending non-actionable subsidies and supporting the farm sector and continually evaluating the foreign direct investment policy.

Commerce secretary Prabir Sengupta, who retires from service on Thursday, said that the new five-year Exim policy to be announced on March 31 will specify which WTO-compatible export incentives can be continued into the future.

Mr Maran said that while the proposed reduction in duties would bring down transaction cost of exporters, the new strategy also advocates “accountability” of export processing personnel and speedy implementation of electronic data interchange (EDI) connectivity for the purpose.

The policy paper also defines strategies for each of the 7 identified major sectors, namely, engineering/electrical/ electronics and allied products; textiles, gems and jewellery, chemicals and allied products, including cement, agriculture and allied products, including plantations and marine products, leather and footwear and other items.

The need to carry forward India’s emphasis on movement of natural persons under the agreement on trade in services in the WTO negotiations had also been emphasised in the strategy. A policy framework has also been mooted to provide export credit by allocating adequate funds to the export and import bank (Exim Bank), besides concessional finance for the export sector.

The commerce minister claimed the strategy marks a significant departure from the earlier strategy of the past two decades in that for the first time, it is based on an analysis of the import basket of major economies and identifies the items in which India is competitive vis-a-vis some of the major exporting countries of these products.

The minister termed the strategy a “road map” for the benefit of the private sector as well as exporters enabling them to gauge the extent of global competition and how to meet it. Mr Maran took pains to explain that the across-the-board reduction in import tariffs would have no negative impact on the domestic sector and the proposal was designed only to equalise the effect of costly imports due to exchange rate depreciation and pointed out that the extent of rupee depreciation had not been to the level of India’s competitors in South East Asia.