The Hindu Business Line : New initiatives to drive export growth

I HAD constituted a High Level Committee headed by the former Commerce Secretary, Mr P.P. Prabhu, comprising eminent economists, business-leaders representing the Chambers of Commerce, the Export Promotion Councils and experienced professionals. This Committee had made important recommendations regarding various schemes and procedures of different departments handling exports. Those recommendations of the Committee have guided us as the pole star in formulating this Exim Policy. In addition, the report of the Medium Term Export Strategy (2002-2007) of our Ministry released in January 2002 provides a mine of Market Intelligence Information and industry-specific initiatives. I think that both the documents may make the `ritual' meaningful and effective by providing the substance, parameters, direction, and strategy for the Five Year Policy.

Our mission

The Prime Minister has directed the Planning Commission to examine the feasibility of doubling our per capita income in the next ten years. The Approach Paper to the Tenth Five Year Plan aims at an intermediate indicative target of 8.0 per cent (instead of 8.7 per cent needed). Almost all the experts are of the opinion that 8 to 9 per cent annual growth for the next ten years while technically feasible, cannot be achieved through "a business as usual" approach. We will need to take radical steps. In line with this approach, our Medium Term Export Strategy has a mission to capture 1 per cent of the global share of trade by 2007, up from the present level of 0.67 per cent. Translated in value, the projected growth will mean doubling the present exports of 46 billion dollars to more than 80 billion dollars over the Tenth Five Year Plan, requiring a Compound Annual Growth Rate (CAGR) of 11.9 per cent in dollar terms.

Removal of QRs on exports

Last year's Exim Policy evoked a lot of interest, because we removed the QRs on imports and the `Quota Raj' it symbolised. We created an Inter-Ministerial Standing Group to track 300 sensitive items and to swing into immediate action, if necessary. I appreciate the vigilant attitude of this "War-Room". Contrary to the apprehensions expressed, I find that there has not been any surge in imports during the year.

This year we propose to remove all Quantitative Restrictions on exports - except a few sensitive items. Only a few items have been retained for exports through State Trading Enterprises.

Agriculture

It is estimated by some economists that every one per cent switch in the terms of trade in favour of agriculture will result in diversion of about Rs.8,500 crore annually in favour of agriculture from the non-agriculture sector. This additional rural purchasing power will create a phenomenal effective demand. Promotion of agricultural exports is important for creating conditions for providing remunerative prices to farm products. I have no doubt that our farmers will rise to the occasion, and that we shall be able to make a mark in international trade in agriculture with a farm-to-port approach as reflected in the Agri Export Zones Scheme and in the proposed Agri-Export Policy which are but small steps forward in the right direction. I am happy to state that the actions initiated in earlier years have begun to bear fruits.

The Government have made major break-through in the export of foodgrains. As against the anticipated export of 80 lakh MTs of foodgrains during the year we have exported about 73 lakh MTs. India is now exporting foodgrains to about 16 countries of the world and according to the International Grain Council reports, in respect of wheat export, we are at the 7th position amongst the wheat exporting countries.

The major initiatives being planned in the Exim Policy are as follows:

Export restrictions like registration and packaging requirement are being removed today on Butter, Wheat & Wheat Products, Coarse Grains, Groundnut Oil and Cashew exports to Russia under Rupee Debt Repayment Scheme. Quantitative and packaging restrictions on wheat and its products, Butter, Pulses, Grain and flour of Barley, Maize, Bajra, Ragi and Jowar have already been removed on March 5, 2002.

To transform select rural regions as regional rural motors of export economy by promoting export of agro products and agro-based processed products, 20 Agri Export Zones have been sanctioned so far. This will provide enhanced international market access to Indian farmers. On invitation and in consultation with the State Governments, we will catalyse development of necessary infrastructure, flow of credit and other facilities for promoting agro exports.

Transport assistance is proposed to be made available for export of fresh and processed fruits, vegetables, floriculture, poultry, dairy products and products of wheat & rice. This will also lead to diversification of agriculture activity. Further, it is also proposed to work out suitable Transport Assistance for export of accumulated stocks of rice and wheat from FCI to facilitate their liquidation.

Special focus on cottage sector and handicrafts

The following facilities will be made available to them:

Initially an amount of Rs. 5 crore has been earmarked for promoting cottage sector exports coming under the KVIC;

The units in the handicrafts sector can also access funds from Market Access Initiative (MAI) scheme for normally permissible activities including development of website for virtual exhibition;

Under the EPCG scheme, these units will not be required to maintain average level of exports;

These units shall be entitled to the benefit of export house status on achieving lower average export performance of Rs.5 crore as against Rs. 15 crore for others; and

The units in handicraft sector shall be entitled to duty free imports of specified items as embellishments up to 3 per cent of FOB value of their exports.

In addition, since they have a very strong propensity for economic activities with export possibilities, we are embarking on a programme of identifying those places. To begin with, places like Khurja (U.P.) famous for its pottery will be undertaken for an in-depth study for their revealed and potential special characteristics for developing an export market.

Towns of export excellence

A number of industrial cluster-towns are exporting a substantial portion of their products, which are world-class. For example, Tirupur is exporting 80 per cent of its production of hosiery. A beginning is being made to consider industrial cluster towns such as Tirupur for hosiery, Panipat for woollen blanket, Ludhiana for woollen knitwear to be eligible for the following benefits:

Common service providers in these areas shall be entitled for facility of EPCG scheme. The recognised associations of units will be able to access the funds under the Market Access Initiative scheme for creating focused technological services. Further, such areas will receive priority for assistance for identified critical infrastructure gaps from the scheme on Central Assistance to States. The units in these notified areas would be eligible for availing all the Exim policy schemes as per their choice and the provisions of these schemes shall stand relaxed to the extent provided in this para in respect of such units.

Gems & jewellery

Customs duty on import of rough diamonds is being reduced to zero per cent. Import of rough diamonds is already freely allowed. Licensing regime for rough diamond is being abolished. This should help India to emerge as a major international centre for diamonds.

Value addition norms for export of plain jewellery are being reduced from 10 per cent to 7 per cent.

Export of all mechanised unstudded jewellery shall be allowed at a value addition of 3 per cent only.

Having already achieved leadership position in diamonds, now efforts will be made for achieving quantum jump on jewellery exports as well.

Personal carriage of jewellery allowed through Hyderabad and Jaipur airport as well.

Special economic zones

Special Economic Zones (SEZs), announced in 2000 after visit to China is taking up roots and four existing EPZs have been converted into SEZs. 13 New SEZs have already been given approval.In a world dominated by the WTO, India cannot be left behind and SEZs are the symbols of Indian endeavour to remain internationally competitive and relevant.

They are our best dream-projects and are firmly based on success everywhere.

Besides the fiscal packages already announced, I am happy to state the following entitlements that will be allowed:

IT concessions to units in SEZ, details of which shall be presented in Parliament;

Exemption from CST to supplies from DTA to SEZ;

Drawback/DEPB to DTA suppliers;

Transactions from DTA to SEZ to be treated as exports under Income Tax Act and Customs Act; and

Exemption to SEZ units from External Commercial Borrowings restrictions, freedom to make overseas investment and carry out commodity hedging.

For the first time in India, Overseas Banking Units (OBUs) will be permitted to be set up in SEZs.

These units would be virtually foreign branches of Indian banks but located in India.

These OBUs, inter alia would be exempt from CRR, SLR and would give access to SEZ units and SEZ developers to international finances at international rates. This, I need to mention, is a very significant decision in making SEZs internationally competitive.

Assistance to states for infrastructural development for exports

You may all remember that during 2000, I have announced a scheme for participation of States in the export endeavour. This new Scheme "ASIDE" would provide funds to the States based on the twin criteria of gross exports and the rate of growth of exports from different States. 80 per cent of the total funds would be allotted to the States based on the above criteria and the remaining 20 per cent will be utilised by the Centre for various infrastructure activities that cut across State boundaries etc. A sum of Rs.49.5 crore has already been sanctioned for this year. Further, a sum of Rs.330 crore has also been approved for the year 2002-03.

Market access initiative

I had also announced last year the launching of the Market Access Initiative Scheme for undertaking marketing promotion efforts abroad on country-product focus approach basis. This Scheme is in line with market promotion and development schemes being implemented by many other countries. A beginning has already been made this year with a small allocation of Rs.14.50 crore, which has been increased to Rs.42.0 crore in 2002-03. I intend to further broaden the scope of this scheme to include activities considered necessary for focussed market promotion efforts.

Incentive package for electronic hardware

In software, India is a global player. But in hardware out presence in international arena is insignificant. Therefore, to give a boost to the hardware industry, we propose to modify the Electronic Hardware Technology Park (EHTP) scheme to enable the sector to face the zero duty regime under ITA-1. The units shall be entitled to following facility:

NFEP positive in 5 years only instead of every year.

No other export obligation for EHTPs.

Supplies of ITA I items having zero duty in the domestic market to be eligible for counting of export obligation.

Re-location of industries

To encourage re-location of industries to India, plant and machineries would be permitted to be imported without a licence, where the depreciated value of such relocating plants exceeds Rs.50 crore.

Action plan under medium term export strategy

In our Medium Term Export Strategy (MTES), we have given a list of 47 potential items in the top imports of major markets. A five-percentage share for these items in major markets would mean an increase in our exports by more than 18 billion dollars. We have also identified a list of 59 items figuring in the top imports of major markets and India's exports. A 5 per cent share in these items in major markets would mean an addition of 36 billion dollars exports. These 106 items are mainly Engineering/Electrical/Electronics items, Instruments, Watches etc., Footwear items, Marine & Poultry items, some Textiles and Chemical items, Jewellery items and items for repairs.

We will give special focus to these items through our Export Promotion Schemes and continue to monitor their progress.

Reduction in transaction time, costs

Our disadvantages arising from the state of the infrastructure, power tariffs, interest rates, industrial relations, taxation structure etc. are well known. The new policy contains several initiatives to immunise at least the export sector against these disadvantages.

Thus while airports, ports and roads are looked after say the ministries of Civil Aviation and Shipping and Surface Transport which are grappling with these issues, our scheme for assistance to the states will take care of the complementary infrastructure.

Similarly, even while the power situation continues to confront our industries, the export industry can go for captive power generation and our scheme announced to day will provide duty free fuel for such power ranging from three to seven percent of the fob value of exports.

The packing credit rate has already been linked to PLR so that the benefits of any further softening of interest rates shall pass on automatically to the exporters.

The Reserve Bank of India is examining the question of requesting Banks to treat at least the Status holders as prime borrowers even for term loans. Some states have taken steps towards differential treatment for export-oriented units in matters pertaining to industrial relations to enable them to adhere to rigorous delivery schedules. The simplification of Exim policy schemes being announced today will more effectively rebate all indirect taxes on imports. The export sector will thus be substantially immunised against the constraints affecting domestic economy.

In the last few years we have taken several steps to simplify the rules and procedures and improve the speed of transactions in the Directorate General of Foreign Trade with the help of information technology.

As a result all the 32 offices of the DGFT have been fully computerised and the exporters can transact all business with the DGFT on-line without having to visit these offices and in fact 75 per cent of the licence applications are already being filed and processed on-line. All the rules and notifications are available real time on the DGFT Web site, which is recording more than a million hits every year.

I consider this as a remarkable achievement indeed and I must compliment the DGFT and his staff. Even three years ago no one would have believed that you could obtain a licence in India on the same day you made the application.

But this miracle has actually happened and while saying this I am not being guided by official reports alone. Exporters all over the country have endorsed this perception in the Open Houses in my presence.

In fact, so confident has this organisation become of its performance and its potential that it has applied for ISO:9000 certification.

This is a remarkable instance of how a whole organisation can transform itself from a "dyed in the wool" regulator and controller to a service organisation and a facilitator - given the right leadership and mandate.

With a view to further reducing transaction costs, various procedural simplifications have been introduced. These include:

DGFT

A new commodity classification for imports and exports is being adopted.

This classification shall be adopted by Central Board of Excise & Customs (CBEC) and DGCI&S shortly.

The common classification to be used by DGFT and CBEC will eliminate the classification disputes and hence reduce transaction costs and time. Similarly, Ministry of Environment and Forests is in the process of finalisation of guidelines to regulate the import of hazardous waste.

Further simplification of all schemes.

Reduction of the maximum fee limit for application under various schemes.

Same day licensing introduced in all the regional offices.

Customs

Adoption and harmonisation of the 8 digit ITC(HS) code.

The percentage of physical examination of export cargo has already been reduced substantially except for few sensitive destinations.

The application for fixation of brand rate of drawback shall be finalised within 15 days.

Banks

Direct negotiation of export documents to be permitted. This will help the exporters to save bank charges.

100 per cent retention in EEFC accounts.

The repatriation period for realisation of export proceeds extended from 180 days to 360 days.

The facility is already available to units in SEZ and exporters exporting to Latin American countries.

These facilities are being made available to status holders only.

Diversification of markets

Focus LAC was launched earlier in order to accelerate our trade with Latin American countries. This has been a great success. Our exports to these countries during 2001-02 have increased by 40 per cent. To consolidate the gains of this programme, we are extending this up to March 2003.

Focus Africa is being launched today. There is tremendous potential for trade with the sub-Saharan African region. During 2000-01, India's total trade with sub Saharan African region was US$ 3.3 billion. Out of this, our exports accounted for US$ 1.8 billion and our imports were US$ 1.5 billion. The first phase of the focus Africa programme shall include 7 countries namely, Nigeria, South Africa, Mauritius, Kenya, Ethiopia, Tanzania and Ghana. The exporters exporting to these markets to be given Export House Status on export of Rs.5 crore.

We have had traditional trade ties with CIS countries, and in the year 2000-01, our exports to these countries reached a level of US$ 1082 million. In order to strengthen these ties, we propose to launch a Focus CIS Programme in the coming year.

Selected Indian Missions will provide business promotion services to visiting Indian exporters / businessmen at a nominal fee on more or less cost basis by setting up "Business Centres".

Duty neutralisation instruments

I know exporters will be eagerly awaiting to know about the fate of DEPB and other schemes like Advance Licences, EPCG and DFRC.

Let me now end the suspense and say that DEPB and all other schemes will continue along with existing dispensation of not having any value caps. The changes in those schemes are as follows:

Advance licence

DEEC book to be abolished. Redemption on the basis of Shipping bills and Bank Realisation Certificates.

Withdrawal of Annual Advance Licence (AAL) scheme as problems were encountered in closure of AAL and the significance of scheme considerably reduced due to dispensation of DEEC. The exporters can avail Advance Licence for any value.

Mandatory spares to be allowed in the Advance Licence up to 10 per cent of the CIF value.

Duty Free Replenishment Certificate (DFRC)

Technical characteristics to be dispensed with for audit purpose.

Duty Entitlement Passbook (DEPB)

Value cap exemption to continue.

No PMV verification except on specific intelligence.

Same DEPB rate for exports whether as CBUs or in CKD/SKD form,

No mid-term reduction of rates except in exceptional circumstances.

DEPB rates for composite items to have lowest rate applicable for such constituent.

Export Promotion Capital Goods Scheme (EPCG)

EPCG licences of Rs.100 crore or more to have 12 years export obligation period with 5 years moratorium.

Supplies under Deemed Exports to be eligible for export obligation fulfilment along with deemed export benefit.

Refixation of EO in respect of past cases of imports of second hand capital goods under EPCG

BIFR units to be given additional period of export obligation.

Leather

Duty free imports of trimmings and embellishments up to 3 per cent of the FOB value hitherto confined to leather garments extended to all leather products.

Textiles

Sample fabrics permitted duty free within the 3 per cent limit for trimmings and embellishments.

10 per cent variation in GSM to be allowed for fabrics under Advance Licence.

Additional items such as zip fasteners, inlay cards, eyelets, rivets, eyes, toggles, velcro tape, cord and cord stopper included in input output norms.

DEPB rates for all kinds of blended fabrics permitted. Such blended fabrics to have the lowest rate as applicable to different constituent fabrics.

Status holders

Over the last few decades certain areas of strength have emerged in the export sector. Definite export surpluses have emerged in sectors like food grains, sugar, yarn, garments, steel, cement, aluminium & petroleum products and pharmaceuticals.

Certain Small & Medium Enterprises (SMEs) and other units in DTA have been exporting more than 75 per cent of their production. Similarly export oriented units and units in export processing zones have been contributing significantly to exports. Certain industrial clusters have evolved on their own without any significant official assistance, each of them collectively producing goods and services worth more than Rs.1,000 crore per year and exporting a substantial part thereof. Status certificates have been issued to units on the basis of their export performance.

Based on all these parameters and the results expected from the new initiatives announced in the last two years, I envision a critical mass emerging on the country's export horizon. In the new policy I propose to nurture this mass so that the country's exports can reach a stage of criticality from where onwards they would perhaps not require even the policy support. Keeping the above in mind, the status holders shall be eligible for the following new/ special facilities:

Licence/Certificate/Permissions and Customs clearances for both imports and exports on self-declaration basis.

Fixation of Input-Output norms on priority;

Priority Finance for medium and long term capital requirement as per conditions notified by RBI;

Exemption from compulsory negotiation of documents through banks. The remittance, however, would continue to be received through banking channels;

100 per cent retention of foreign exchange in EEFC account; and

Enhancement in normal repatriation period from 180 days to 360 days.

The threshold for obtaining status certificate as Export House has been brought down to Rs. 5 crore for tiny, cottage, small scale, handloom, handicraft, agri exports, services, units having ISO:9000 (series ) status, exporters exporting to Latin American countries, Sub-Saharan Africa and CIS countries.

Send this article to Friends by E-Mail

Stories in this Section
Global airlines still keen on `Maharaja'

Deadline for zero revenue gap may be pushed back

CAG raps Govt for poor fiscal management

Q3 current account posts surplus after nine years

Petrol, diesel imports through IOC to continue

CF lamps: Ray of hope amid power crisis?

Chamber welcomes new tariff order

Raichur thermal power station units 3, 4 -- ICICI-Lombard emerges lowest bidder for risk cover

Staggered power cuts

Subsidy to SSIs on the decline

Farm exports freed; thrust to SEZs -- Maran gives Exim policy a friendly push