Chance to revamp key promotional schemes missed

ANNUAL SUPPLEMENT TO FOREIGN TRADE POLICY 2004-09

At a time when the global economy is slowing down, the rupee is appreciating and higher interest rates and inflation are eroding export competitiveness, the expectation was that Commerce Minister Kamal Nath would be a bit downbeat.

But he has not only stuck to his export target of $200 billion for 2008-09 but also articulated a very optimistic long-term vision of increasing the country's share of world trade to 5 per cent by 2020, which means an eight-fold increase in exports through 25 per cent annual growth for the next 12 years.

He has also announced the setting up of a joint task force to draw up an action plan to realise this dream, although similar steps like setting up of a Board of Trade have not met with great success in the past.

Kamal Nath has managed to convince the finance ministry to reduce the duty under the Export Promotion Capital Goods (EPCG) scheme to 3 per cent. It will help set up capacities at a lower cost.

He has allowed duty credits under reward schemes for exports made in discharge of obligation under the EPCG scheme.

However, at least 50 per cent of the export obligation must be met by exporting goods that have a nexus with the imported capital goods.

The problem of maintaining annual average exports is only partly addressed. Premier trading houses (read Reliance) can maintain an average of the past five years and for sectors that have slowed, the requirement is being diluted. The issue needed a more comprehensive treatment.

The extension of the Duty Entitlement Passbook (DEPB) scheme for another year is a widely expected and necessary step in the given circumstances. The decision to extend the income tax concession to export-oriented units (EoUs) was rather unexpected but is a bit too ad hoc.

The increased rewards for exports of toys and sports goods, enhanced rewards under the Focus Product Scheme, wider coverage under the Focus Market Scheme, the Vishesh Krishi Gram Udyog scheme and the Hi-Tech Products Exports scheme, interest payment for delayed refunds, continuing the export credit interest subsidy scheme for specific sectors and steps to reduce transaction costs for exporters will help, although the impact may not be too significant.

Steel prices are rising because of an increase in input costs. To bring down steel prices by increasing supplies, the government has decided to discourage exports by withdrawing the DEPB benefits and now, the duty credits under reward schemes.

It must be appreciated that it takes years to develop markets overseas and build customer relationships. Such gains should not be subject to whims of abrupt policy changes.

Harried exporters get immediate cash relief by way of lower application fees but they need better services from the offices of the Director General of Foreign Trade.

The implementation of the policy has to improve and several ambiguities remain unaddressed. The opportunity to revamp certain schemes like the Duty Free Import Authorisation scheme has been missed. Hopefully, these will receive better attention in the coming days.

Overall, Kamal Nath has delivered something when nothing much was expected from him.