The annual supplement to the 2009-14 Foreign Trade Policy (FTP) unveiled on August 23 has its share of the expected and the unexpected.
Overall, it responds to the demands of the exporters for more subsidies and continuation of popular schemes to help them overcome the continued difficult and uncertain market conditions abroad and the effects of about 10 per cent appreciation of the rupee against the dollar and about 10 per cent inflation at home.
Few expected the Status Holder Incentive Scheme or the Zero Duty EPCG (Export Promotion Capital Goods) Scheme to be continued beyond 2011 or extended to more sectors.
Fewer expected the bonus 2 per cent duty credit for select employment-intensive sectors that are struggling to export.
Commerce Minister Anand Sharma can legitimately take the credit for goading the finance ministry to agree to these extensions and increases in subsidies. Higher support for market and product diversification was very much on the cards.
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Therefore, it is no surprise that more items have found their way into the Focus Product Scheme (FPS) and Market Linked Focus Product Scheme (MLFPS). The continuation of the interest subvention scheme for select sectors was also expected.
The talk of doing away with the Duty Entitlement Passbook (DEPB) scheme has been around for almost 10 years. Ideas have been mooted to put in place an alternative scheme but exporters have resisted any move to do so. Every now and then the scheme got extended for short periods and this time also, it has got extended for six more months.
The DEPB scheme was invented in response to complaints that the administration of Duty Exemption Scheme (DES) was flawed.
Now, the exporters have got so used to hidden subsidies under the DEPB scheme that it might be difficult to abolish the scheme.
Procedural simplifications by way of annual EPCG licences/authorisations, doing away with Chartered Engineer Certificate under DES, data preparation module under DES and EPCG scheme, etc., and online message exchange with Customs for more schemes etc., are welcome moves but plenty of hopes rest on the expected report of the Task Force to Reduce Transaction Costs.
The hopes must be bridled with an appreciation that unless the commerce ministry is willing to look at the regional offices of the Director General of Foreign Trade as sources of significant transaction costs, not much headway can be made.
Sharma seems happy that the overall export growth rates have looked up and especially, the figures for investment, export growth and employment under the Special Economic Zones scheme look good.
He must appreciate that giving more subsidies will win appreciation from exporters and will definitely show more exports but subsidies have a way of entrenching themselves.
They don’t go away even when the times are good and worse, they shift the focus away from efficiency.
Indian exporters seem so used to crutches that they look short on faith in their own legs. So, it is no surprise that they have convinced Sharma that they need more subsidies to survive the economic slowdown in the rich countries.
That may be fine when the going is uncertain but any policy that feeds the belief that without subsidies the exporters cannot survive deserves a re-look. Hopefully, in the next review of FTP, Sharma will take a long term view.
Email: tncr@sify.com