Financial Daily from THE HINDU group of publications
Monday, Apr 01, 2002
Industry & Economy
New initiatives to drive export growth
The following are excerpts from the Five-Year Exim Policy (2002-07) unveiled on Sunday by the Union Commerce Minister, Mr Murasoli Maran:
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.
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
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.
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:
Special focus on cottage sector and handicrafts
The following facilities will be made available to them:
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
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.
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:
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:
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:
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.
100 per cent retention in EEFC accounts.
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
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:
Duty Free Replenishment Certificate (DFRC)
Duty Free Replenishment Certificate (DFRC)
Technical characteristics to be dispensed with for audit purpose.
Duty Entitlement Passbook (DEPB)
Duty Entitlement Passbook (DEPB)
Export Promotion Capital Goods Scheme (EPCG)
Export Promotion Capital Goods Scheme (EPCG)
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.
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:
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.
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