'Most of the steps will have a marginal impact'

FOREIGN TRADE POLICY/ COMMENT: T N C Rajagopalan

"The annual supplement to the five-year Foreign Trade Policy 2004-09 has some positive features"" as every annual review has""but it essentially signifies continuity. The big relief for exporters is the continuity of the revenue-leakage prone schemes that give them unjustified subsidies.

The target plus scheme that gives direct export subsidies between 5 per cent and 15 per cent of the annual incremental export growth will continue. The Duty Entitlement Passbook (DEPB) scheme, that gives duty credit based on the value of exports, continues.

The 'Served from India' scheme that gives duty credit between 5 per cent and 20 per cent of the foreign exchange earned by service providers continues.

The extension of Export Promotion Capital Goods (EPCG) scheme will essentially benefit large retail chains housed in large shopping malls that attract foreign tourists.

The reduced export obligation for small and medium enterprises and agri exporters from eight times the duty saved to six times the duty saved will encourage more entrepreneurs to use the EPCG scheme.

The decision to close the cases where the EPCG license holder discharges more than 75 per cent of the export obligation within half the export obligation period will help many exporters.

Allowing discharge of export obligation through rupee earnings by inland container depots (ICD), container freight stations (CFS) and minor ports whose earnings are in Indian rupees will help them improve infrastructure facilities.

The procedural simplifications under EPCG scheme, like Chartered Engineer Certificates, in case of units not registered with Central Excise is essentially setting right a wrong. But the facility to allow clubbing EPCG licenses by removing conditions of same licensing year and same products/ services will help many defaulters.

However, the expectation that the EPCG scheme will allow imports at zero duty (instead of 5 per cent) as a direct consequence of peak duty reduction to 15 per cent and duty of 5 to 10 per cent for many machines has not been met.

The commerce minister has added to the sectors identified for special focus by picking the marine products sector but exporters in the auto component and pharmaceutical sector will be disappointed, as the minister was quoted a week back as having assured a special package for them.

The steps such as removal of export cess on farm products, simplified procedure for certifications and transfer of duty-free goods, extension of annual advance license facility to all exporters and increase in entitlement to 300 per cent of the previous year's exports, allowing clubbing of advance licenses for the 1992-97 period, pruning the list of sensitive items under DFRC scheme, etc. are of marginal impact in terms of transaction costs.

Small exporters, service providers with over Rs 50 lakh foreign exchange earning and units in Agri Export Zones will welcome the move to reduce bank guarantee requirement under duty exemption or EPCG scheme to 15 per cent of the duty saved.

The other trade facilitation measures to remove unnecessary difficulties will also help.

While announcing DEPB benefits for supplies made by domestic tariff area (DTA) units to units in special economic zones (SEZ), with retrospective effect from April 1, 2003, the commerce minister rightly observed that this is setting right a wrong.

The export-oriented units (EOU) will welcome simplified procedures for de-bonding, selling to advance license holders, transfer of samples, capital goods, etc. to other EOUs.

The commerce minister was silent on some burning problems like demand of income tax department for taxes on DEPB, the absence of provisions in the value-added tax (VAT) regime to export without tax payment, duty-free entitlement for status holders for incremental exports during 2003-04 etc.

Overall, the exporters are somewhat disappointed that most of the steps announced have insignificant impact."

The author is an expert in trade matters