The Foreign Trade Policy, announced by Commerce and Industry Minister Anand Sharma, identifies the three major pillars that would support India in achieving the target of doubling its export of goods and services by March 2014. The three pillars are: improvement in export-related infrastructure, lowering of transaction cost and providing full relief on all indirect taxes and levies.
The overall approach of the Policy pronouncement recognises the vulnerability of certain sectors, which are employment-oriented and sensitive. Thus, a number of initiatives have been announced that should enable enhanced market access through revamped schemes such as the focus market, focus product and market-linked focus product schemes.
It is noteworthy that the incentives available under the focus market scheme has been raised by half a per cent to 3 per cent and the incentives in focus product scheme from 1.25 per cent to 2 per cent. Along with the marginal increase in the rate of incentive, the coverage has also been extended fairly significantly.
The 26 new markets that have been added to the focus market scheme includes 16 in Latin America and 10 in Asia-Oceania, including comparatively larger markets such as South Africa, Brazil and Mexico and this would enable our exporters to get the benefits under the schemes which were hitherto denied to them.
The new Policy initiatives relating to import of capital goods are indeed, timely. The EPCG (Export Promotion Capital Goods) scheme has really been benefiting the upgrade and modernisation of India’s export manufacturing sector and the new incentive of giving access at zero duty would certainly help the beneficiary sectors such as engineering and electronic products, pharmaceuticals and chemicals, apparels and textiles, leather and leather products. These are sectors where India enjoys a comparative advantage and the zero-duty capital goods import facility should go a long way in speeding up the process of technology upgrade.
Further, the Policy has incentivised import of capital goods with Actual User Condition, by providing additional duty credit script at the rate of 1 per cent of FOB value of export to status holders in specified sectors. To what extent would this be beneficial is doubtfu, as most of the status holders are merchant exporters and hence they would find it difficult to meet the requirement of the Actual User Condition.
Exports under the Advance Authorisation Scheme have been tightened by stipulating a 15 per cent minimum value addition on imported inputs. This step seems to contradict the government’s approach to units in SEZs, as they enjoy a zero-duty market access to all raw materials without having to achieve any specified value addition norm. Even though the present norm is only to have a positive value addition, Indian manufacturers have not refrained from achieving higher value addition in actual practice. Under such a circumstance, the curtailing of the freedom available to the exporters seems unwarranted.
Even though the policy recognises lowering of transaction cost as one of the three important pillars to achieve the targets, the policy measures seems to have touched upon this area only, marginally. The steps announced with regard to electronic message exchange between Customs and the Directorate General of Foreign Trade (DGFT), stoppage of double verification of shipping Bills by Customs for DGFT Schemes and exhortation to Export Promotion Councils to issue RCMC Certificates through EDI are welcome.
However, the full range of steps that are needed to reduce the transaction cost of international trade has not been captured. While the aforesaid steps would give some relief, there is a crying need for a web-enabled import-export authorisation/clearances regime that would avoid exporters or importers approaching various agencies and departments for effecting a trade transaction. EDI offers only a partial solution to the problem.
KT Chacko
Director, Indian Institute of Foreign Trade
