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Welcome policy support to exporters

Exports touching $155 billion in 2007-08 despite rupee appreciation, moderate growth in world trade, withdrawal of GSP (Generalised System of Preferences) facility in importing countries show the resilience of Indian exports and the dynamics of the foreign trade policy. The World Trade Organization’s rules and regulations do not allow much flexibility in providing sops to the export industry.

However, looking at the extraordinary situation where the Indian currency appreciated over 12 per cent in one year, exporters have been looking for such ad hoc measures. The Government did respond though on a limited scale. However, increase in duty remission rates, extension of the subvention scheme, remission of service tax on a few specified services did add to competitiveness of exports which is reflected in the export growth.

Moreover, the good performers on the export front are sectors that are import intensive like gems and jewellery, petroleum products, engineering and chemicals. The traditional exports have been affected badly and, being high value added items, will have to be extended the 2.5 per cent benefit under the focus products scheme.

Exporters availing themselves of the Export Promotion Capital Goods (EPCG) scheme will be benefited by the two per cent reduction in duty and rationalisation of export obligation for premier trading houses. Other categories of status-holders, who have shown extraordinary growth in the last three years or so, should be given similar treatment. Export oriented units (EOUs) were waiting for extension of the income-tax benefit and will heave a sigh of relief for the time being.

Finally, the uncertainty over the Duty Entitlement Pass Book (DEPB) scheme is over as the same has been extended till May 2009. One hopes that the extension will become co-terminus with the introduction of the Goods and Services Tax (GST).

The extension of the focus market scheme is a step in the right direction in view of the fact that the U.S. economy is likely to grow by less than 0.5 per cent, the EU by less than 1.5 per cent and the developing countries by about 6 per cent. The Economic Survey has underlined the need for greater focus on Africa, now emphasised in view of the proposed doubling of Indo-Africa trade by 2012. Certain countries like Algeria, Egypt, Kenya, Nigeria, South Africa and Tanzania have been left out from the focus list. The export community is optimistic that these will be included shortly.

The facility given for exports of fruits and vegetables where India is price competitive should help a quantum jump in exports. However, this will have to be supplemented by provision of cold storage facilities so that wastage of these products, now over 40 per cent, is minimised. It is strange that despite having more than 50 per cent price advantage in fruits and vegetables, India’s share in the world trade is just 0.5 per cent and 1.7 per cent, respectively, while China commands over 35 per cent of the world market.

When China can export 35 per cent of world fruits and vegetables, India, being an agricultural country, should be able to match it with a proper mix of policy and entrepreneur skills. One can expect that these products will come to be included in the list of high value added manufactured goods, garments, cotton textiles and leather as these sectors are in dire need of support.

Being the terminal year for the present government, exporters were not expecting major changes in the foreign trade policy framework. Hence, the recent policy announcements have come as a pleasant and welcome surprise.

Fortunately, the year 2008 has seen some stability in the rupee and the appreciation of currencies of some of our competitors has restored competitiveness to our exports though on a limited scale.

However, there is growing concern over rising inflation but, being part of the globalised economy, India should take it in its stride along with many other developing countries. The forecast for world trade in 2008 has been revised to 3.7 per cent recently. Admitting that India’s share in global merchandise trade is only 1.25 per cent, the moderate growth in world trade in contrast to 7.5 per cent, 9.4 per cent and 6.9 per cent in 2005, 2006 and 2007, respectively, is bound to make the task more challenging.

The Government is committed to zero rating of exports and, therefore, a mechanism to provide rebate of State and local levies should be devised shortly. For manufacture of certain products in certain States, these levies are as high as five per cent of the exports value. Removal/remission of these will add to competitiveness by five per cent. The objective of the foreign trade policy to create additional jobs is laudable but one cannot ignore the loss of jobs due to currency appreciation and the consequent out pricing of our products in the international market.

It is expected that the special economic zones will not only add to our exports and employment but will also provide the requisite infrastructure for exports. Infrastructure bottlenecks will be most crucial for exports when the country is looking at a 5 per cent share of global trade by 2020.

It is good that the market development assistance scheme has been liberalised for sports goods and the toy sector but it needs to be extended to other labour intensive and sunrise sectors of export. The FIEO has been advocating the creation of an “export development fund” for aggressive marketing by the Indian MSME sector. When other countries can provide such kind of assistance to their exporters, we should not lag behind. Creation of such a fund with a corpus of at least 0.5 per cent of total exports is the need of the hour. An export of over Rs. 6,00,000 crore cannot be supplemented with an MDA fund of Rs. 50 crore.

The world trade is dominated by transport equipment, office and telecom products, fuel, food products and machinery, which contribute about 60 per cent to the total. India’s share in this segment is less than 0.5 per cent though as per recent trade data its share in global merchandise trade is over 1.2 per cent. Doubling the share in this segment will alone add over $60 billion to exports.

A beginning was made in the last policy to push exports of high technology products but inclusion of IT hardware and telecommunications will provide the much needed boost. The Indian software brand can be expected to help sell Indian hardware as well. However, looking at technological obsolescence in this sector, it will be necessary to provide the capital goods required at zero duty. More support can be provided to this sector by including them under the focus product scheme as well and simultaneously allowing both the benefits.

Toys and sports goods are mainly in tiny and cottage sectors and were in dire need of protection against fierce competition from China and other countries. The additional duty credit of 5 per cent will help the two sectors in meeting global challenges. Increase in exports from these two sectors will not only add to direct employment but also indirect employment in non-metro centres where such clusters are located.

The Government has also initiated various measures to reduce transaction costs which include dispensing with requirement of physical verification for EPCG and advance authorisation scheme, treatment of all EDI ports as a single port, reduction in application fee for EPCG and IEC. However, EDI connectivity amongst all the 13 trading partners is the need of the hour. This by itself will provide much relief in reducing transaction costs which still range between 5 and 7 per cent.

The extension of interest subvention scheme will definitely help, particularly exporters from the MSME segment, as they will be getting credit at much cheaper rates. Traditional sectors like textiles, leather, marine products, carpets and handicrafts get credit at 6.5 per cent below the prime lending rate.

India is on course to achieve an export target of $200 billion this year. Efforts in this regard will be rewarded thanks to the high global prices. However, it will be more satisfying if larger export earnings come from increased volume thereby generating additional jobs.

G. K. GUPTA

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