Given the limited policy space that he had, Commerce Minister Kamal Nath has done well to focus on procedural issues that impact transaction costs and render Indian exporters competitive. The interim Foreign Trade Policy (FTP) that he unveiled as an annual supplement on Thursday gives away little by way of cash incentives that many exporters demanded. Nath has also very rightly preferred to remain silent on the issue of losses that some exporters incurred in derivatives trading.
The decision to give transferable Duty Credits under various export promotion schemes without waiting for realisation of export proceeds significantly improves the cash flow of the exporters. The condition that the export proceeds must be realised remains. The restriction that exporters must give legal undertakings or bank guarantees will impact few as export houses, most manufacturers and exporters having over Rs 5 crore exports will not be covered by the restriction. Yet, it is a restriction worth reviewing.
The extension in export obligation period under the duty exemption scheme and Export promotion Capital Goods (EPCG) scheme meets the demand of the times as most exporters have run out of orders and cannot fulfil export obligation. Other facilitating measures like aligning the provisions of FTP with customs notifications, additional duty credit entitlements for carpets, stapler machines, textiles etc., and simplification of forms etc. will help but not significantly impact exports.
Expectations were high that under the EPCG scheme, the duty rate would be brought down from 3 per cent to zero and that the units in Special Economic Zones (SEZ) will be allowed to clear goods in Domestic Tariff Area (DTA) by paying the equivalent of excise duty and surrendering the import duty concessions. Export Oriented Units (EOU) expected income tax concessions to be extended beyond 2010. Apparently, Nath could not persuade the Finance Ministry to agree.
Nath has not bowed to the demands to increase the Duty Drawback or Duty Entitlement Passbook rates across the board. The case for such increase in rates was weak, as the present rates already include a subsidy of over 20 per cent. The annual supplement to FTP has come barely two days after the excise duty rates were cut from 10 per cent to 8 per cent on most items and the service tax rates were cut from 12 per cent to 10 per cent.
Now, it is for the bureaucrats in the Commerce and Finance Ministries to rise to the occasion and implement the dispensations efficiently. Export prospects do not look very good at all and this is the time to be helpful and disburse the refunds/rebates quickly.
In his review of the objectives of the FTP and successes during the four years of the present government, the Commerce Minister emphasised how the policies have helped the idea of ‘inclusive growth’. He could have given more figures regarding select critical sector-wise additional exports and additional employment.
Exporters can now stop looking at the government to bail them out of trouble and start thinking how they can help themselves. With no fresh export orders and completion of all orders in the pipeline, they will have idle capacity to exploit. The best course is to concentrate on improving quality and exploring new markets. After a feverish four-year run, they can devote a year to consolidate and innovate. They can also introspect and devise new strategies to become more competitive.
