Take trade policy beyond 'annualisms'

EXIM MATTERS

The annual revision of foreign trade policy will be announced on April 8 instead of March 31, say press reports. However, if past experience is any guide, there is no certainty about when the commerce minister will actually announce the policy. Indeed, there is no certainty about its implementation either.

Last year, the commerce minister had said the new FTP will be announced on July 31, 2004. After several postponements, he announced the policy on August 31, 2004. Several important policy announcements he made remain on paper till this day.

For example, the Target Plus scheme was an important announcement "" easily the highlight of the new FTP. Under the scheme, export houses, based on their incremental exports during the year, are entitled to duty credits that they can use to pay duty on their imports.

Although the scheme has been announced, the government has not even notified the application form for making the claim and has clarified that export houses will get three months' time to file their claims, if and when the application form is notified.

More importantly, the government is yet to release the duty free credit entitlements for status holders (that is, export houses, trading houses, etc.) for the incremental exports they achieved in the previous year.

The Exim Policy revision for the period 2003-04 introduced a duty-free credit entitlement certificate (DFCEC) scheme, in terms of which, status holders who achieved incremental growth of 25 per cent or more were entitled to DFCEC at 10 per cent of the incremental export growth.

While announcing the mini-Exim Policy, just before last year's elections, the government imposed a number of restrictions that amounted to denial of the benefits of the scheme to a large number of status holders. Some of them approached the courts.

Regarding the others, the government simply disabled the software for acceptance of the applications for DFCEC and even refused to accept manual applications.

Even manufacturer exporters who have achieved incremental growth of 25 per cent or more by export of their manufactured goods in their own name are yet to get the promised benefit.

The problem is that schemes such as DFCEC and Target Plus are direct export subsidies based on the volume of exports in value terms. They encourage over-invoicing and are not compatible with the disciplines of the World Trade Organisation. The finance ministry is wary of such schemes.

In fact, the finance ministry is of the view that even the duty entitlement passbook (DEPB) scheme should be abolished because it grants duty credits on the basis of value of exports, thereby, encouraging over-invoicing.

The finance ministry wants to broad base the duty drawback scheme through which the actual duty incidence can be reimbursed and as a matter of simplification standard drawback rates can be notified based on the quantity exported.

Last year, Commerce Minister Kamal Nath decried the practice of annual revisions to the Exim Policy as "annualism" and claimed that he will put in place a stable five-year FTP.

He is now coming up with a revision within 8 months. He must have realised the need to fine tune the policy in the fast changing economic environment. Hopefully, he will announce the policy after due consultations and ensure its faithful implementation.

tncr@sify.com