Making more sense

At a time when the country's foreign exchange reserves are booming and import duties are being rationalised, all that the annual exim policy changes can hope to achieve is to address the remaining irritants in the policy.

And that is precisely what Commerce and Industry Minister Arun Jaitley sought to achieve through the various exim policy changes he announced yesterday.

The changes promise further improvements in the policy governing submission of export/import documentation on the Internet and even introduce e-commerce initiatives like digital signatures, bidding goodbye to the need for submitting scores of documents for advance licences.

Similarly, the changes in the Export Promotion Capital Goods (EPCG) scheme signal a welcome display of common sense since the scheme in its current form had lost its relevance.

If a firm imported goods worth Rs 500 crore and enjoyed a duty concession of, say, Rs 100 crore, its export obligation under the EPCG scheme was estimated at Rs 2,500 crore.

Clearly, few exporters took advantage of the scheme because of such huge export liabilities. Now, what has been proposed is far more sensible. A firm has to export goods worth eight times the duty saved, or a much lower Rs 800 crore.

Other changes, like allowing EPCG importers to export any item instead of the earlier pre-specified products, also show that the government is getting a lot more realistic in its expectations.

Other proposals, like a gold card scheme to provide near-Libor credit for exporters with a good track record, are also welcome, though whether the measure will work is yet to be seen.

Even today, exporters are supposed to get dollar loans from banks at near-Libor rates, but most of them complain that they are not able to access this cheaper credit.

Of course, till such time that the government reduces overall import duties to global levels, tinkering around with incentives, as has been done in the latest exim policy changes as well, is bound to create its own distortions.

Making the EPCG scheme more accessible, for instance, is a good thing, but it also puts the domestic capital goods industry at a disadvantage since it faces all manner of local levies and taxes as compared to products imported at concessional duty rates.

Similarly, while the decision to allow duty-free import of fuel for exporting industries may help lower costs for them, what it also does is to distort the incentive structures in the economy as companies will now factor in savings from fuel imports while deciding on whether to go in for exports.

Allowing even stand-alone restaurants to import duty-free products of the sort previously allowed only to 5-star hotels is a good idea, but subjecting this to the proviso that all the benefits be passed on to the customer is only going to ensure that the inspector-raj is given yet another reason to live.