Focus likely on sustaining growth in merchandise exports, job creation

G. Srinivasan

New Delhi, March 12

The modifications to the Foreign Trade Policy (FTP), to be unveiled on March 30, 2006, will have several pro-policy pushes in the light of the sustained growth in merchandise exports for the past three years, averaging 20 per cent in dollar terms.

Sources in the Government told

Business Line

here that even as incremental promotional steps are announced every year to the five-year FTP framework in the light of the feedback obtained from trade and industry, expectations run high among exporters this time round. This is presumably because the Prime Minister, Dr Manmohan Singh himself has chaired a couple of meetings in a bid to grapple with the problems plaguing this sector and how best to provide an enabling milieu so that high growth of exports could be sustained.

The sources said this year the policy support would centre around identifying "focus products" and "focus countries" which have largely been bypassed in the past because of the low-end value of these export items and the obsessive concern to export, mostly to western markets.

Job-oriented strategy

They said that in tune with the UPA government agenda of encouraging exports that provide employment opportunities to skilled, semi-skilled workers, the products to be identified for focused thrust would be mostly employment generating in nature. They cite the recent study made by the Research and Information System (RIS) for the developing countries for the Department of Commerce, which spelt out that opportunities abound for augmenting exports as well as employment that remain unexploited. The components of an employment-oriented strategy, according to the RIS, encompass small-scale policy and industrial clusters, linking export fillips to incremental exports rather than total exports, attracting export-oriented FDI, restricting raw material exports and moving up the value chains.

The RIS study said that export sector is estimated to have generated an additional direct employment of 1.4 million jobs in 2004-05 and counting indirect employment, it said merchandise export activity appears to sustain nearly 16 million jobs in India.

Asked whether the quantification of export promotion subsidies and tax concessions provided to this sector in the Receipts Budget 2006-07 signals the Government's resolve to scale down the facilities for trade and industry, the sources said that "one had to make a distinction between export incentives and neutralisation of duties because exporters cannot export taxes levied locally."

To a query as to whether the replacement to the Duty Entitlement Pass Book Scheme would be announced ahead of March 30, the sources said that the matter would be resolved by the Cabinet Committee on Economic Affairs at its forthcoming meeting.

Target Plus review

The sources said the Target Plus scheme operational for the past two years had become controversial with exporters alleging that the scheme benefits only very large exporters as they purchase the export of small and medium exporters without ensuring additional volume of exports. Hence, the sources said the Government might "re-visit" the scheme either by suspending it or scrapping it.

Yet another demand is from the 100 per cent export-oriented units (EOUs), which relates to the imminent removal of sunset Clause under Section 10 B of the Income Tax Act after March 31, 2009.

In view of the removal of I-T exemption, most of the 100 per cent EOUs might "migrate" to SEZs to avail of the 15-year phased tax holidays provided by the SEZ Act, defeating the very objective of dedicated manufacturing capabilities for exports provided by the EOUs in the past.

As there is some merit in the plea of EOUs, the Government might weigh this plea carefully, the sources added.

(This article was published in the Business Line print edition dated March 13, 2006)
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