Foreign trade policy delayed again

EXIM MATTERS

For the third successive year, the commerce ministry has postponed the date for announcement of the foreign trade policy or the annual supplement to the same.

In 2004, Kamal Nath had taken over as commerce minister sometime in May. The Budget was presented in early July. Yet, the foreign trade policy was announced only on August 31, 2004. Last year, the minister delayed the announcement of major changes by over a week i.e. from March 31 to April 8.

This year again, the major changes to the policy will be announced on April 7 and not on March 30 as stated earlier.

The postponement, as usual, has triggered speculation that the finance ministry and the commerce ministry hold divergent views on some critical issues, in particular, the export promotion schemes that cause revenue leakage. Usually, the Prime Minister should be able to decide on such issues.

But the political equations seem to suggest that Kamal Nath's proximity to Congress chief Sonia Gandhi gives the commerce minister greater chance to influence the outcome.

The annual foreign trade policy review serves a useful purpose in the sense that each policy and procedural provision is reviewed and any glitches sorted out. The experience gained during the year helps fine tune the foreign trade policy. The suggestions from the trade also are vetted and some of them implemented.

This year, the commerce ministry has the benefit of suggestions from the Board for Foreign Trade, headed by Kumar Mangalam Birla. Some of its suggestions are on expected lines.

For example, the Duty Entitlement Passbook (DEPB) Scheme should continue for one more year. The DEPB scheme should rebate not only the basic duty of Customs but the service tax incidence also. The Target Plus Scheme and Duty Free Credit Entitlement Certificate (DFCEC) Scheme should provide for excise duty payment and procurement from domestic sources and so on.

As usual, quite a few export promotion councils have also pointed out that the burden of un-rebated taxes on the inputs, especially the service tax and the value-added tax has gone up and the unorganised sector is unable to maintain its competitiveness in the difficult international trading environment.

In the meantime, few seem to have noticed that the DEPB has died a natural death once again, because Customs notification No 89/2005-Custom of October 4, 2005 was valid only till the March 31, 2006. No notification has been issued before March 31 to extend the exemption from duties to goods cleared under the DEPB scheme.

The last time the DEPB scheme died a similar death was on September 30, 2005. The government did not extend the validity of the notification No 96/2004-Custom of September 17, 2004 dealing with duty exemption against debit to the DEPB.

The government woke up four days later and issued a fresh notification and through a retrospective amendment proposed through the Finance Bill, 2006 regularised the period between September 30 and October 4 for exemption against debits to the DEPB. Something similar will have to be done again.

The focus in the new supplement to the foreign trade policy should be on reduction of transaction costs. Exporters complain that the procedural bottlenecks are a major hurdle to export growth.

The commerce minister might, however, focus more on some more schemes that will ensure enough growth to achieve the target of $150 billion by 2009.

tncr@sify.com