The finance minister, in his Budget for 2009, took many initiatives that will help exporters. But none of them is significant enough to make any crucial impact on export prospects. Perhaps he has left it to the commerce minister to find ways to reduce transaction costs and recast the export promotion schemes in the new Foreign Trade Policy due in the first week of August.
Now the focus shifts to Commerce Minister Anand Sharma. It is hard for Sharma to resist many demands for subsidies from exporters, who are going through rough times mainly due to recession in rich countries. But it is equally difficult for him to press the finance ministry for more concessions due to fiscal constraints. He can get off to a good start by telling the exporters that their major problem is the falling demand in the developed countries and that there is no point in throwing money just to help them sell at lower prices, which would only amount to subsidising the foreign buyers with Indian taxpayer’s money.
More important, Sharma should ask whether it is necessary to put in place the next five-year policy immediately. The Foreign Trade Policy (2004-09), which was to expire in March 2009, has been extended due to the elections. The uncertainty about how long the developed countries will take to come out of recession is so high that looking ahead for five years would only mean making wild guesses. A policy to ride out the remaining eight months of the current fiscal year would be more appropriate.
The chief merit of an ad hoc policy for eight months would be that Sharma can get enough time to meet more exporters and understand their problems, meet more trading partners and understand their perspectives, and get a better feel of the way the export promotion schemes and the way various offices of Director General of Foreign Trade work. He can reconstitute the now defunct Board of Trade and seek advice from experienced representatives of exporters rather than depend only on his ministry officials.
Sharma need not fear criticism for opting for a short-term policy because there is no shame in admitting that you need more time to frame a long-term policy due to uncertain times. That would be better than rushing headlong for a long-term policy that will have to undergo major changes by next year. Even otherwise, there are many temporary measures already in place. The Duty Entitlement Passbook Scheme is on till December 2009 only. The interest subvention scheme and enhanced risk coverage of Export Credit Guarantee Corporation are only till March 2010. The income-tax concession for export oriented units is only for one more year — till March 2011.
Some initiatives, such as bringing down the duty to zero under the Export Promotion Capital Goods (EPCG) scheme, can be taken immediately. That will encourage modernistion by exporters. The Advance Authorisation and Duty Free Import Authorisation scheme can be merged and simplified. That can help reduce transaction costs. Many misuses, especially under deemed exports schemes and value-based reward/remission schemes, can be curbed. Paperwork can be cut significantly and procedures simplified to help exporters concentrate more on selling their products. Such measures need not wait for a long-term policy.
Email: tncr@sify.com
