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Opinion - Exim Policy


Mini Exim Policy 2004 — Impetus to manufacturing exports

S. D. Naik

The fine-tuning of the Exim Policy and the various liberalisation measures announced by the Commerce Minister are expected to further improve the competitive strength of Indian industry.

THE thrust of the Mini Exim Policy, announced by Commerce and Industry Minister, Mr. Arun Jaitley, on January 28, is on providing an impetus to manufacturing exports by lowering trade barriers and reducing transaction costs. The measures and changes announced are complementary to the Mini Budget proposals of Mr Jaswant Singh to lower Customs and excise duties to provide the much-needed boost to the manufacturing resurgence being witnessed over the past two years.

Clearly, the latest changes are intended to carry forward the process of trade liberalisation to make India a globally-competitive manufacturing hub. Among the significant measures to facilitate export growth are:

  • Liberalisation of duty-free exemption schemes and export promotion

    capital goods (EPCG) scheme;

  • Duty-free import of fuel for actual users to cut cost of power for

    exporters;

  • Gold card scheme for credit worthy exporters with sound track

    record for easy availability of export finance;

  • National Export Insurance Account for ECGC to underwrite

    high value projects being implemented abroad;

  • Hike in ECGC equity to enable it to underwrite larger risks

    for project exporters;

  • Permission to actual users to import prototypes without any limit;

    Allowing rupee payment facility for port handling services for discharge of export obligation under EPCG; and

  • Digital signature and electronic fund transfer facility for filing

    export/import applications.

    Some of the essential imports needed for export production have been liberalised. Imports of all kinds of capital goods, including official and professional equipment, will be allowed under the Duty Free Entitlement Scheme with the exception of agriculture/dairy products and cars. Also, non-tariff barriers applicable on imports for export production have been rationalised for food and textile items.

    The policy has now made it easier for Corporate India to discharge its export obligation under the EPCG scheme by enhancing its value to eight times the duty saved from the earlier norm of five times the cost, insurance and freight (CIF) value. In addition, the companies have also been allowed the flexibility to club EPCG licences and to include exports of products and services by the group companies in fulfilling the export obligation.

    Since the peak rate of Customs duty has now been reduced from 25 per cent to 20 per cent along with the abolition of four per cent special additional duty (SAD), the EPCG scheme has become less attractive. Against this backdrop, the prevailing five per cent duty on imports under ERCG should have been abolished altogether.

    The policy has also introduced a gold card scheme for easy availability of export finance to credit-worthy exporters with sound track record. However, one will have to wait and see how far this facility is going to meet the needs of such exporters. Perhaps, a more innovative measure is the launching of the digital signature and electronic fund transfer facility. This will enable exporters to submit online import and export applications in the offices of the directorate general of foreign trade (DGFT).

    To encourage electronic filing of applications by importers and exporters, the DGFT has reduced the licence fee in cases where online digitally signed applications with electronic fund transfer are submitted on its Web site. MoUs have been signed with the ICICI Bank, HDFC Bank and the State Bank of India for providing electronic fund transfer facility for depositing import/export licence fees as per the requirement of the EXIM policy. This will eliminate paper work, help save time and reduce transaction costs.

    To encourage electronic filing of applications by importers and exporters, the DGFT has reduced the licence fee to 50 per cent in cases where online digitally signed applications with electronic fund transfer are submitted on its Web site.

    Important among the sector-specific measures are the permission for free import of gold and silver, deemed export facility to fertiliser and refinery projects pending from Eighth and Ninth Plans, and the decision to extend the benefits of duty-free imports to heritage as well as one and two-star hotels and stand-alone restaurants.

    The decision to allow duty free import of gold and silver is likely to invite criticism from certain quarters on the grounds that such imports do not lead to productive investment. However, in the context of the bulging foreign exchange reserves, the move should be viewed as one more step towards full convertibility of the rupee. Moreover, this should also help increase jewellery exports and provide employment opportunities to more people.

    Till now, only the nominated agencies such as the banks and MMTC could import bullion. The new move will reduce transaction costs and benefit jewellers, particularly in smaller towns since they will be in a position to import gold and silver directly without any hassles. India exported gem and jewellery worth $9.1 billion in 2002-03, accounting for nearly one-fifth of the country's exports. There is still a huge untapped potential to increase these exports.

    Tourism, another employment-intensive sector in the country, will receive a much-needed boost with smaller hotels and stand-alone restaurants now being allowed duty-free import of wines and liquor. The policy has also brought capital goods, including office and professional equipment, for the tourism sector under the duty-free import category. Most middle-class tourists from abroad as also large segments of domestic tourists cannot afford the luxury of five star hotels and prefer cheaper hotel accommodation.

    While welcoming the government decision to extend the benefits of duty-free imports to heritage as well as one- and two-star hotels, the Federation of Hotels and Restaurants Association of India (FHRAI) has rightly resented the conditionality attached to it. The benefit extended to this segment is subject to undertaking that they would be passed on to consumers. At a time when the objective of all reforms is to introduce procedural simplification, such policing is totally uncalled for. If there is greater competition, the hotels will automatically pass on such benefits to customers.On the whole, the fine-tuning of the Exim Policy and the various liberalisation measures announced by the Commerce Minister are expected to further improve the competitive strength of Indian industry and provide a boost to the country's manufacturing exports.

    Incidentally, the release of Mini Exim Policy has coincided with the release of robust export figure for December. After showing some signs of a slowdown in recent months, export growth during the month of December 2003 has zoomed to 42.68 per cent in dollar terms at $5.49 billion over $3.85 billion during the corresponding previous month. With this, the aggregate export growth during the first nine months of the current fiscal works out to 13.48 per cent.

    Even granting that the spectacular export growth during December 2003 is partly on account of the downward revision of December 2002 export figure, the Commerce Ministry is now confident of exceeding the export growth target of 12 per cent fixed for this fiscal. Moreover, with the changes now introduced in Exim Policy, the outlook for exports appears distinctly upbeat.

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