T N C Rajagopalan: Policy fails to take a holistic view of trade issues

Fails to draw up clear road map to achieve targeted export growth

The new Foreign Trade Policy is little more than a semi-annual Exim Policy. Like all annual Exim Policy announcements, it has a few short-term measures that will please some and a few long-term initiatives that will draw praise. But, it fails to take a holistic view of the issues and concerns intricately connected with foreign trade or draw up a clearer road map to achieve the targeted export growth.

The commerce minister said next to nothing about the government's negotiating stance at the WTO, trade relations with neighbours, approach towards bilateral trade agreements, export related infrastructure, integration of development and globalisation strategies, helping market penetration, the SEZ Bill, market access issues, competitiveness, project exports and so on.

Having said that, revival of Board of Trade and establishment of Export Promotion Council for services could help sharper focus. Marginal improvements like transferability of fuel entitlements under DFRC, flexibilities under EPCG scheme, withdrawal of taxes on services exports, service tax exemption for EOUs, income tax exemption on conversion of DTA units to EOUs, extended validity of import licenses, grievance mechanism etc. will help. Some sector specific measures for gem and jewellery, handlooms and handicrafts and leather and footwear sectors will also help reduce transaction costs.

Import of used capital goods without any age limit might help creation of capacities at lower cost but the Customs must be instructed to charge duty on transaction value and not on depreciation method that mandates duty on minimum 30 per cent of he original value of the goods. Waiver of bank guarantee under duty exemption schemes for those with export turnover of Rs 5 crore might help small merchant exporters, but the Customs will have a tougher time dealing with defaulters.

Incidentally, manufacturers with export performance in past two years and over Rs 1 crore export in the preceding year are already exempted from furnishing bank guarantees.

Besides a passing mention about high level of defaults under EPCG scheme, the minister said nothing about how he proposes to deal with businesses or businessmen who avail of duty exemptions but do not fulfill their obligations. In practice, the government has given whoever masquerades as exporter, complete freedom to evade duties through export promotion licenses.

It is difficult to appreciate liberal giveaways like duty free entitlements for status holders, service providers and agri-exporters and easier status recognition norms. The government might regret these direct export subsidies to a larger group of exporters. Overall, the announcements would have been better received had the Commerce Minister not raised expectations that the new Foreign Trade Policy will go far beyond nitpicking. In fact, he has only fine-tuned the Exim Policy.

(The author is a foreign trade expert)