Big on words, small on reform

Analysing the policy

The Exim policy for the next five years has to be judged in the background of an increasing trade deficit. During the first six months of the current financial year, India's trade gap went up to $5.5 billion compared to $4.5 billion during the same period last year.

There has been an upward movement of imports to the extent of 1.5 per cent while exports fell by 2.45 per cent during the same period. The government, therefore, had to take measures to boost exports at all cost.

Having initiated a major change last year in removing quantitative restrictions (QRs) on imports, this year had to see a policy smoothening out the creases in the existing one. The policy statement today has been of that nature. It sounds like a growth-oriented policy but, in effect, the new initiatives are only marginal.

Basically, the removal of export QRs, giving extra facilities to special export zones (SEZs) and boosting agricultural exports have been the mainstay of the policy.

<b>Other positive features include:</b>

Adopting a common eight-digit code as in customs, which will remove difference with customs, is only technical and will not gain more exports;

Transactions from the domestic tariff area to SEZs will be treated as exports. This is an extension of the idea of deemed export; Reduction of examination of export goods. But these are not good enough;

There was a need for a few urgent reforms which have not been looked into.

There is still provision for savage penalties for non-performance of exports even when the reasons are genuine.

This makes venturers twice shy. They face double injury, losing market and also having to pay penalty.

This has all been done by the ministry of commerce, which has been praised sky-high by the minister.

The approach should have been to realise the customs revenue forgone rather than to penalise exporters.

A step-motherly attitude still persists towards revenue. A proper approach should be to make manufacturers more efficient and competitive in real terms.

"The simplification of the Exim policy will more effectively rebate all indirect taxes on imports," says the minister in paragraph 29. This is incorrect since there are already systems in force to make all exports shorn of all indirect taxes.

Unless this attitude of blaming taxes changes - and it must start with the minister- real reforms will not start.

All export-promotion schemes should be reviewed and combined.

At present, we have advance licence or the Duty Exemption Entitlement Certificate (DEEC), Duty-Free Replenishment Certificate, Duty Entitlement Passbook and Export Promotion Passbook.

The Shome Committee, appointed in 2001 by the Planning Commission, recommended the multifarious schemes be combined so that no confusion and evasion take place. This has not been done.

All export processing zones should have been converted into SEZs. There is no rationale behind having different types of zones. Exports of wheat and rice should have been looked into rather than pineapples and lychees.

Some measures are just pious statements, basically to show that some reform is being done:

The DEEC has been abolished, it was totally meaningless. After all, the shipping bills and related documents have to be entered somewhere. The certificate was a consolidation of all documents and shows all liabilities have been discharged.

Focus Africa and Focus CIS are not new ideas. I have been hearing this Africa business for the last 32 years. Packaging old ideas in new slogans may impress some but will not boost exports.

The provision that old machinery can be relocated from abroad on licence is an existing practice. Emphasising it in the speech has not served any purpose.

There is one measure that is positively fraught with danger. For some exporters, exemption has been granted from compulsory negotiation of documents through banks though the remittance will be through banks. The idea is to exempt them from bank charges. This is a very dangerous concession since the recovery of foreign exchange itself will be in jeopardy.

This will open the floodgates for manipulation by connivance. Looking at Annexure II of the policy one is struck by the lackadaisical approach of the state as well as authorities.

The SEZs approved in 2000 are still languishing and detailed project reports have not yet been prepared. At this rate, the pious statements about the growth in exports will remain only on paper.

<b>Right step for freeing exports</b>

<b>P.P. Prabhu</b>

The Exim Policy has made the right export-friendly moves. It has rightly continued all the exemption schemes. There is a wrong perception that such exemptions cause huge duty losses, but one should realise that these are nominal losses.

I don't deny that there are some slippages, but such misuses are negligible compared to the volume of exports. I am also pleased with the major thrust given to agricultural exports, as well as the initiatives announced for cottage and small-scale industries and handicrafts, which have tremendous export potential.

The policy has also incorporated several of our recommendations, including those on industrial clusters and on the thrust given to special economic zones.

The government has given a clear message that it wants to develop these zones as foreign enclaves of international standard by envisaging initiatives like overseas banking units.

In any case, no policy can really determine the export thrust of a country, which must come from all the sectors. It must be kept in mind that exports are determined by a host of issues, including international ones and the economic policies of the country.

To that extent this policy is a great one and takes forward export liberalisation. I do not expect the sops provided by the Centre to be reversed.

However, I am disappointed that no timeframe has been set for full computerisation of the export promotion departments. This should have included, as per our recommendations, banks dealing with exports.

Anyway, those are procedural delays that do not override the pre-eminence that is now being given to exports. The Centre has realised that exports are one of the key aspects of development, and that is reflected in this policy.

Since I do not have the full papers at the moment, it will be difficult to comment as to how far the commerce ministry has addressed the five-year focus of the exports. But since the export environment is subject to rapid changes, there has to be corresponding changes.

On the issue of relocating industries from abroad, there is an obvious fear that obsolete technologies can come in from abroad, but I am quite sure that Indian entrepreneurs are canny enough to avoid such pitfalls. They will also have to take care of the environmental aspects.

<b>Policy will not meet target</b>

<b>T.N.C Rajagopalan </b>

The commerce minister has sprung some pleasant surprises besides making the appropriate noises, while unveiling the Exim Policy for 2002-2007. He has ensured continuity of the present policy, while fine-tuning many provisions, although some measures go halfway and some issues remain unaddressed.

The abolition of quantitative restrictions on exports, greater thrust for special economic zones (SEZs), increased allocation for market access initiatives, higher allocation to states for export promotion, promotion of agriculture export zones (AEZ) and the continuation of the Duty Entitlement Passbook (DEPB) scheme were all expected announcements.

The unexpected aspects include overseas banking units, abolition of Duty Exemption Entitlement Certificates (DEEC), scheme to neutralise fuel costs, transport assistance for agriculture-based products, a lower threshold for export house recognition for certain categories, treatment of supplies to SEZs on a par with physical exports and deemed export benefit to EPCG licence-holders.

In India, the SEZ scheme has to compete with attractive export promotion schemes for units in the domestic tariff area (DTA) and 100 per cent export-oriented units. Grant of DEPB and income-tax exemption to supplies from India to the SEZs might only see a lot more of circular trading: goods that go to the SEZs by availing DEPB might come back to the DTA in the same or substantially the same form.

Liberalisation of exchange control regulations regarding the extended time for realisation of export proceeds for status-holders or reducing value-addition norms for the gems and jewellery sector do not mean much when it is quite easy to manage inward remittances and show export proceeds realisation. It is better to abolish the very condition regarding export proceeds realisation.

It is doubtful if the announcements about abolition of DEEC and verification of technical specifications under the Duty-free Replenishment Scheme will be implemented. Last year, the finance ministry had refused to implement similar announcements.

Free exports of farm products, besides diverting more income to our farmers, will enable our traders to have a steady presence in the global markets. But, they have to ensure consistent quality, packaging, delivery, credit and active participation in the commodity futures markets.

The commerce minister was silent on downsizing or elimination of the bureaucracy at the 32 licensing offices of the directorate-general of foreign trade. That is a disappointment.

Hopefully, the commerce minister's roadmap will help accelerate economic reforms even if the Exim policy alone might not help India achieve 1 per cent share of global trade.