The Economic Survey is fairly upbeat on the growth prospects for the Indian economy but quite downbeat on the growth prospects for exporters. More significant, it recommends fundamental policy changes rather than any quick-fix solutions to revive exports. This means that the exporters can look forward to little more than comforting words from the finance minister on Monday.
The Economic Survey calls for checking proliferation of special economic zones (SEZ). The suggestion comes not a day soon. The SEZ policy for developers was put in place hoping that they would create world-class infrastructure. That is not happening as many corporate houses have opted for captive SEZs, merely shifting the investments to SEZs to take advantage of tax breaks. Many software units have shifted to SEZs to take advantage of tax breaks as the income tax concessions under the Software Technology Parks of India (STPI) scheme are no more certain. Not many large multi-product SEZs are in sight due to difficulties in land acquisition. Instead of a few large SEZs, we now have a large number of private industrial estates that offer nothing more than tax breaks.
Few can quarrel with the suggestion that the existing export promotion schemes should be streamlined. On how to go about it, the survey is silent. Essentially, there seems to be no point in having a 3 per cent Export Promotion Capital Goods (EPCG) scheme. It is better to have a zero duty scheme or better still, cut the Customs duty on capital goods to say 5 per cent and get rid of the EPCG scheme. Administration of the duty exemption scheme through the Revenue Department can make many offices of the Director General of Foreign Trade (DGFT) redundant or at least make them compete for work. Abolition of the Export Oriented Unit (EOU) scheme can lead to enough simplification. The deemed export scheme can very well be dealt with through excise and Customs exemption notifications. But the Budget is unlikely to deal with any of these.
The survey does not offer any insight into gains of Free or Regional Trade Agreements (FTA/RTA). At one point, it says that they have helped exports and at another point it says that imports have gone up. Its recommendations are also vague. The suggestion that special attention should be given to export infrastructure is nothing new. However, the call for rationalisation of port service charges based on services rendered by ports in tune with our competing countries is something new. This suggestion springs up from nowhere. I wish the survey had laid out a basis and made out a case for that.
The survey offers other usual suggestions to weed out unnecessary Customs duty exemptions and rationalising the tax structure, including specific duties, in a calibrated manner, taking into account the specific duty levels in our trading partner countries and other things.
The survey seeks continuation of the reduction in Customs duty to make our exports and industry competitive. At the same time, it also says that we need to desist from any protectionist tendencies. I wonder how many domestic industries will agree with this view. Already, we can see a proliferation of anti-dumping and safeguard duties. With reduced duties, such actions will only multiply. It is better to increase Customs duties rather than have so many anti-dumping duties.
Email: tncr@sify.com
