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POLICY DIKTAT
NEW NATIONAL TRADE POLICY:
MAKING INDIA A MAJOR PLAYER IN WORLD TRADE
The five-year (2004-09) Foreign Trade Policy announced by
Union Commerce and Industry Minister, Shri Kamal Nath,
embraces an all encompassing, comprehensive view for the
overall development of India's foreign trade, with the
objective of making it a major player in world trade. It
aims at doubling India's percentage share of global
merchandise trade to 1.5 per cent by 2009 from 0.7 per cent
in 2003. It also hopes to serve as an effective instrument
of economic growth, by providing a thrust to employment
generation, especially in semi-urban and rural areas.
In a major relief to exporters, it does away with the
service tax on exports while seeking to boost employment
generation. Export Oriented Units (EOUs) have been exempted
from service tax and other exporters would be refunded the
service tax paid on inputs for export production. In a
breakaway from the traditional Exim Policy, it addresses the
need to correct the inverted duty structure that deprives
many segments of domestic industry of a level playing field
as the country signs more free preferential and regional
trade agreements. A new scheme for the setting up of Free
Trade and Warehousing Zones, with permitted FDI of 100%, has
been introduced to create trade-related infrastructure.
Their enhanced focus on trading (warehousing) over
manufacturing, will distinguish them from Special Economic
Zones. The creation of free trade warehousing zones, setting
up of a Services Export Promotion Council and biotechnology
parks and providing special focus initiatives in sectors
including handicrafts, handloom, jewellery and leather
sectors are key elements of the Policy that also allows
import of second-hand capital goods without age
restrictions.
In retrospection, there has been no major departure from the
five-year Exim policy `02-07, though the new FTP bears
definite marks of the UPA-led Government's Common Minimum
Programme. The first-ever National Foreign Trade Policy has
restricted itself to a facilitating role, with foreign trade
largely freed and import duties falling progressively. The
Government has also announced another trade leveraging
policy, apart from a special package for textiles, tea and
coffee sectors.
For achieving the objectives, it proposes a slew of
strategies, including the unshackling of controls to create
an atmosphere of trust and transparency; simplifying
procedures, cutting down on transaction costs; neutralising
incidence of all levies and duties on inputs used in export
products; facilitating development of India as a global hub
for manufacturing, trading and services; identifying,
nurturing special focus areas that will generate additional
employment opportunities, especially in semi-urban and rural
areas, and developing a series of 'initiatives' for each of
these; facilitating technological and infrastructural
upgradation of all sectors of the Indian economy, especially
via import of capital goods and equipment to increase value
addition and productivity, while, at the same time,
attaining internationally accepted standards of quality.
The FTP also lays down guidelines for the establishment of a
suitable Grievance Redressal Mechanism to avert the need for
litigation, nurture a constructive and conducive atmosphere
and further partnerships between merchant exporters,
manufacturer exporters, business and industry with the
Government.
INDUSTRY REACTIONS, MIXED
According to some textile exporters, the decision to
withdraw the service tax on Export Oriented Units will
reduce transaction costs to a large degree. Mr. Rahul Mehta,
former Chairman, the Clothing Manufacturers' Association of
India (CMAI) contends, "Since service tax has been withdrawn
on EOUs, the Government should match it up by increasing
duty drawback for other exporters." Mr. Anees Noorani,
Vice-Chairman and MD, Zodiac says "We were looking for
benefits like tax holidays. This could have improved the
competitive edge of Indian textile exporters."
On the other hand, the Apparel Exports Promotion Council (AEPC)
feels that the target plus scheme will certainly make new
investments and the undertaking of fresh contracts, at
competitive prices, more lucrative. AEPC Chairman Mr. A.
Shaktivel terms it "a golden opportunity to the garment
exporters to achieve more than 20 per cent export growth
during this year." He adds, "The facility of transferring of
capital goods under EPCG scheme to group companies will
provide apparel exporters a level playing field."
Continuation of the DEPB scheme will be of great relief to
garment exporters for finalising hitherto pending export
contracts, although removal of sales tax on sale of DEPB has
not been addressed. Allowing import of second-hand capital
goods of any age will enable fresh capital investment for
modernisation of the apparel industry. Mr. Shaktivel feels,
"This measure is also likely to bring additional investment
of Rs. 250 crores to Rs. 300 crores in a year."
The facility of providing financial aid in trade related
matters to deserving exporters is a welcome step, with the
textile phase out just around the corner. Mr. Shaktivel
envisages a 15 per cent growth that will enable the industry
to target export turnover of above 6,000 million US $ in
2004-05, as compared to last year's 5,243 million US $, to
put it in a position to generate employment for an
additional two lakh workers in a complete year.
The Policy comprises 'special focus initiatives' for
employment-intensive sectors like gems and jewellery,
handlooms, handicrafts, leather and footwear, and gives a
boost to exports from SMEs sector, too. It brings down the
threshold for becoming a status-holding exporter from Rs. 45
crores to Rs. 15 crores, while export clusters of Rs. 250
crores turnover (as against Rs. 1,000 crores at present)
have been qualified as 'towns of export excellence'. Small
and medium exporters will benefit too, from liberalisation
of import of capital goods and the additional flexibilities
for fulfillment of export obligations under the Export
Promotion Capital Goods (EPCG) scheme. The Policy introduces
three new export promotion schemes - Target Plus, Vishesh
Krishi Upaj Yojana and Served from India, to benefit
exporters who excel over others, exporters of farm products
and exporters of services. The 'Served from India' scheme, a
modified version of an existing one, attempts to create a
powerful brand for Indian services exports in the global
market.
IMPLEMENTATION, KEY TO SUCCESS
Mr. Amit Goyal, President, The Confederation of Indian
Apparel Exporters (CIAe), says, "One of the most significant
announcements is on Service Tax wherein the Minister has
announced that all goods and services exported, including
those from DTA units, shall be exempted from it. The only
question here would be whether the exporters would be
exempted from the service tax or would they be refunded for
the same, this may be clarified in the procedural
announcements'.
Another silver lining seems to be the will of the Government
to reduce transaction cost as the new policy while
simplifying the procedures, that all exporters with minimum
turnover of Rs. 5 crores and good track record shall be
exempted from furnishing bank guarantee in any of the
schemes, will help several exporters tide over their
finances. However, Mr. Amit Goyal rues that the most
important announcement, according to the CIAe, was on income
tax benefit under 80HHC or a similar scheme, but which the
Commerce Ministry fails to address.
The Synthetic & Rayon Textiles Export Promotion Council (SRTEPC)
deems the National Trade Policy 2004-09 as pragmatic and
growth-oriented, terming it a step in the right direction,
with its highlight being the continuation of the DEPB scheme
till an alternate scheme is put in place. Shri Rakesh Mehra,
Chairman, SRTEPC, observes, "It is encouraging to note that
export-import activities are being viewed as an instrument
to stimulate the domestic economy. This, I am sure, will be
re-assuring for exporters who can now take a long-term view
and plan accordingly. The setting up of free trade
Warehousing Zones that will facilitate development of India
as a hub for global manufacturing and trading is another
welcome step. SRTEPC also welcomed the introduction of
Co-acceptance/Avalisation as equivalent to irrevocable L/C,
with these forms of payments becoming increasingly popular
these days, in the international market. Introduction of the
new 'Target Plus' scheme too, will certainly encourage
exporters to step up exports.
He concludes, "If implemented properly, the various schemes
announced in the Policy will certainly lead to the
development of exports, thereby making our country a major
player in the global market." |
