Anand Sharma in Trade Policy Beautification Drive

Arun Goyal/6 June 2012

The DGFT finally succeeded in getting the minister to release the Foreign Trade Policy 2012 to a packed hall of exporters and media at the prestigious Vigyan Bhavan in the Capital on 5 June. The normal cycle of release of the Policy in the beginning of April shortly after the Union Budget in March is restored to an extent. It is sad that the thorough review of the sectors by DGFT over the last three months in face to face meetings with the best of the exporters should have yielded so little by way of bold strategy to promote exports and manage imports. Thus the devaluation of the rupee to the 56 mark against the dollar has made Indian product and commodity prices in rupee terms lower by at least 25 percent. Yet the Commerce Minister says that he is targeting export growth this year at a ‘minimum’ of 20 percent, the same as that in year gone by. This is not fair calculation, imports go down due to an expensive dollar, exports too should rise based on a cheap rupee.

India is moving up in the world, it is now a permanent fixture in the top 20 in the WTO world exporters and world importers club. It ranks at the top in rice, textiles, diamonds, pharma and software. Similarly, it is a top importer of electronics hardware, consumer goods, energy goods, recyclable material and machinery. Each of these sectors has many problems and issues which could have been addressed by the Minister. Yet all we have is tinkering and beautification, some more items and markets for incentives whose effectiveness has yet to be demonstrated or proved. (Can you believe it, exports to Austria, which is a member of the EU and Euroland will now be incentivised as a focus area, this is when exports to the country have no meaning since good move freely through Europe in the common market regime. How and why do the garment exporters manage the focus incentive EU and US. Focus covers only a part of a market which has potential for growth, they cannot be used for a well explored and developed market.

The continuation of the interest subvention scheme is said to be a major achievement of the policy. Hardly…interest rates in India are fixed artificially in India, the average spread between lending and borrowing in India is estimated at 3.5 percent in India, which is the highest profit margin in the world! Thus if the government gives away 2 percent to the banks in the subvention, there is no ‘cost’ to the government or the banks which still earn 1.5 percent from the exporter.

On the credit side, The DGFT and his able team of officers have done well to bring about procedural reform like end to end, seamless documentation from shipping to payment stages through EDI for incentive disbursal. The EPCG on post export basis is good step, however, how many exporters trust the government to keep its promise of rewarding them with scrips many years after the actual export. Similarly, the offer of excise duty payment through the reward scrips is fine but most exporters buy their goods through the market and in small quantities. Besides, the scrips are riddled with unworkable actual user conditions and shopping lists. The Government should stop micro management and give the incentive to the exporter up front in a clean, one shot transaction. And, last, why should the government decided how the carpet exporter of Bhadohi gets his payment, the new policy says exports must only be on LC basis, shipments on credit are not allowed. This is hardly the way to handle an industry that has a successful history of over 40 years in which it has diversified from only Persian designs to Chinese, Zen and Western classical motifs.

Let us hope that the other changes on SEZ, EOU. Deemed exports and B to C transactions promised in the near future will see some new thinking on trade. We are tired of seeing the wine in old bottles.