The Hindu Business Line : Foreign Trade Policy

Exporters are pleading for only deliverables from the authorities and, hopefully, the forthcoming Foreign Trade Policy will not dampen their zest for performance. It is time the authorities ensured that the inter-ministerial coordination between the Departments of Commerce and Revenue was formalised.

After the Budget, the next important official policy statement is the announcement of the modifications to the Foreign Trade Policy (FTP), normally unveiled on March 31. That the UPA Government is keen on highlighting the wasteful subsidies or subventions and allot them instead to the deserving, is quite well known.

It is not for nothing that the Receipts Budget 2006-07 highlighted export-linked drawbacks in such schemes as Duty Entitlement Pass Book (DEPB), Quantity Based Advance Licence (QBAL), 100 per cent Export-Oriented Units (EOUs), Export Promotion Capital Goods Scheme (EPCG), Special Economic Zones (SEZ), Value-based Advance License (VBAL), Special Imprest Licence (SIL), Export Processing Zones/Software Technology Parks (STPs) and Duty Free Replenishment Certificate (DFRC) together accounting for Rs 35,430 crore a year as mere "revenue foregone".

Input tax credit

According to the Receipts Budget, the overall estimated Customs duty foregone for 2004-05 of Rs 92,561 crore, subsumed the Rs 35,430 crore and "most items may not be termed incentive schemes, as they largely represent input tax credit that has to be allowed in order to offer a level playing field to our exporters in international markets".

This is precisely the point exporters have been trying to emphasise to revenue authorities through the representatives of the Department of Commerce, whenever disputes arise over drawback settlement.

That the Finance Ministry has begun to look at the input tax credit as a way of ensuring a level playing field for Indian exporters on the principle that goods and not taxes should be exported, is a vast improvement in mind-set.

Such an approach will take the sting out of the oft-made charge that exporters' operations entailed tax revenue foregone to the exchequer.

DEPB credit

Let there be an end to the interminable argument over what should be the quantum of duty drawback or DEPB credit or the putative substitute to be evolved to take care of fuel costs or other local levies being slapped on manufacturer-exporter.

It is time the authorities ensured that the inter-ministerial coordination between the Departments of Commerce and Revenue happened through a durable institutional structure involving the Commerce and Finance Ministers, as suggested by the Prime Minister in his interactive meeting with representatives of officials and exporters in January. Hopefully, the forthcoming policy will set at rest the issue once for all.

Service tax

As exporters are agitated over the `unrebated' services tax whose number has been increasing, covering several services used by exporters, the Government may have to yield on this realm too, lest exporters feel encouraged to earn more foreign exchange.

The Federation of Indian Export Organisation (FIEO) has already sounded the bugle stating that service tax makes exports uncompetitive. Its plea is that while CENVAT (Central value-added tax) facility is allowed to manufacturer-exporters to offset service tax paid, others including merchant exporters and units not registered with excise authorities, are compelled to absorbthese taxes.

What worries FIEO members is that the service tax is levied on `reverse services', like commission disbursed to agents outside India or services obtained for marketing goods, such as warehousing, which are important for enabling exports to get going smoothly.

Export credit

Yet another plausible demand of FIEO members is concerning export credit to the countless small and medium enterprises (SMEs) who cannot match the financial muscle of big exporters of star trading houses.

They said that while the rate of interest applicable to the exporter is the prime lending rate minus 2.5 per cent, which currently works out to 11 per cent or above (compared to 5 per cent in Hong Kong, 5.31 per cent in China, 3.75 per cent in the UK and 4 per cent in the US), the amount of credit lent to the export segment as a percentage continues to be less than the 12 per cent mandatory target set by the RBI.

The issues of which exporters seek redress are legion. This came to the fore during the Board of Trade meeting in the capital on March 14 under the Chairmanship of the industrialist, Mr Kumar Mangalam Birla.

EPCG REFORM

Exporters contend, and justifiably, that with the peak duty structure pruned each year, the extant duty rate of 5 per cent under the EPCG scheme for import of capital goods has lost its remit.

They say that as the EPCG scheme not only connects imports made with an export obligation but also enables industrial upgradation and modernisation, a liberal policy regime for its further usefulness in export promotion bids needs to be put in place.

They seek a zero-duty EPCG scheme to boost industrial activity and bolster export growth in various sectors.

Exporters also look for a liberal interpretation of the annual average level of export under the scheme as also somewhat a liberal approach in the fulfilment of export obligation under advance licensing scheme. In line with the underlying philosophy of the UPA Government, a new scheme to focus on certain products and markets to accelerate export growth has been suggested.

These could be marine products, leather and goods, sports items, (including toys), fireworks, processed food items, stationery items (excluding paper), handlooms bearing handloom mark and handicraft items.

The industry is also pitching for support to exporters to certain focus countries — other than major trading partners — having exports of less than $200 million in a bid to "occupying space" in emerging markets, as China is doing.

EOUs VERSUS SEZs

The 100 per cent EoUs are finding the going tough with the advent of the Special Economic Zones (SEZ) Act, as the latter enjoy more benefits than the former, resulting in an uneven level field when the overarching objective of both remains to achieve higher export growth.

With export receipts likely to be close to $100 billion and the country clocking up a 20 per cent growth in dollar terms for the fourth year in a row, the exporters have reasons to rejoice and to look for ensuring a hassle-free working atmosphere for their continued growth.

In fact, the Finance Minister, Mr P. Chidambaram, while replying to the Budget discussion in the Lok Sabha, took pride in the fact that the services growth of the economy was autonomous.

In spite of the stifling atmosphere created by escalating transaction cost, poor and inadequate infrastructure and detention or delayed payment of legitimate dues or rebates for the taxes borne, the exporters have displayed exceptional ingenuity in pushing the exports and as a consequence the growth has been equally "autonomous".

What the exporters are pleading for is only deliverables from the authorities and as such the forthcoming policy announcements to FTP may hopefully not dampen their zest for performance and excellence to make further foray into new areas by way of diversification, both product and destination.