The Hindu Business Line : Coordinated moves to boost exports

The Commerce Ministry's Annual Supplement to the Foreign Trade Policy looked like an after-the-event initiative as it did not have much to offer the export sector other than exhortations to do better. Exports in any case are likely to improve upon the $100-billion-plus performance in the year gone by and all that the policymakers had to offer were abstract, long-term measures — hubs for gems and jewellery and auto components and region-wise targeting for products. Prudently, the Commerce Ministry stayed away from offering any tax incentives for the exporters probably for fear of revenue leakage. This caution is not surprising as the Special Economic Zone Act of 2005 will lead to enough haemorrhage.

Just when it appeared that export initiatives, with all their fiscal and employment ramifications, would remain the bailiwick of the Commerce Ministry comes the news that the Finance Ministry has set up a panel to look into revamping the tax regime for the gems and jewellery sector. Headed by a former Revenue Secretary, Mr M. R. Sivaraman, the panel is an outcome of the Finance Minister's Budget promise to look into the tax burden of the export-intensive sector. One of the issues the panel will look into is the replacement of income-tax with the turnover tax. Prima facie this suggests that the two most important Ministries are acting in concert; the Commerce Ministry had proposed to the Finance Ministry a turnover tax for the $17-billion diamond industry. Industry and trade representatives have been calling for this switch as leading competitors, Belgium and Israel, tax turnover and not income.

The setting up of the panel underlines the need for a consensus on a wide swathe of policies relating to exports especially as the trade deficit has been widening with imports growing more than 30 per cent in 2005. World Trade Organisation data show that India has moved up the ladder of 30 leading importers, from the 24th to the 17th position in merchandise trade in 2005. In exports, it has pulled itself up a notch to the 29th position in the pack of the world's 30 leading exporters. Needless to say, the country is far behind China on both counts. From a policy prescription, the data can be read both as reflecting success and failure. The import figure shows the extent to which India has shopped for the best in the global bazaar and benefited from liberal fiscal and foreign exchange measures; the export ranking throws up shortcomings in policy to boost merchandise exports. Notwithstanding the stellar performance of services and traditional exports such as gems and jewellery India is a long way from catching up with China.

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