FinMin wriggles out of exports growth row

Slowdown not linked to fiscal policy, PMO told.

The finance ministry has rejected the suggestion that any decline in exports is attributable to fiscal policy and has called for a deeper analysis of sectoral trends and factors behind their slow growth.

In response to a note from the Prime Minister's Office, the ministry said, "It would be incorrect to attribute all fluctuations in exports to fiscal policy and resolve problems through revenue `giveaways'.

It would also be unrealistic to expect that we can provide resources to bridge any perceived handicap that exporters may face in any sector. This is obviously not possible in a poor country with a huge population and multiple needs".

A recent PMO note to the finance ministry had enclosed figures compiled by the department of commerce indicating a "worrisome declining trend". Denying that indirect taxes constrain growth of exports, the finance ministry is of the view that competitive disadvantages stem from government doles

It pointed out that it had done quite a bit to boost exports. "The revenue forgone under various export promotion schemes during the last few years has steadily increased from about Rs 24,800 crore in 2001-02 to Rs 41,000 crore in 2004-05, despite the fact that peak duty came down from about 35 per cent to 20 per cent", it said. The schemes are advance licence, special economic zone (SEZ), DEPB, and five others.

The finance ministry pointed out that while it agreed to further liberalisation of the SEZ scheme, it had several problems with the rules notified by the department of commerce.

The ministry has raised three crucial issues. The first relates to EoU/EHTP/STP units getting the same income tax benefits as the SEZ units. Top officials said this was unacceptable as SEZ benefits could not be extended to units outside such zones.

"This was only a reiteration of the virtual SEZ concept that had been given up at the time of discussions on the SEZ Bill", they said.

On the demand for exempting all sales from domestic tariff area (DTA) to export-oriented units (EoUs) from sales tax (which is presently reimbursed through the department of commerce budget), the finance ministry said the issues related to states and should be dealt with at that level only.

It has also rejected the demand for exempting sales from DTA to EoUs from service tax in place of the present system of refund.