Providing tail wind to sell abroad

With the air of uncertainty surrounding country’s export prospect in view of slow pace of recovery of global economy, the government’s external trade policy initiative to extend ongoing export-promotion schemes, no doubt, reflects a timely pragmatic approach. Against the backdrop of export still struggling to get into high profile growth rate that was noticed during the years prior to the onset of global slowdown in late 2008, Union Minister for Industry & Commerce Anand Sharma, while announcing the Annual Supplement (2010-11) to the Foreign Trade Policy (2009-14) has rolled out sops worth Rs 1,050 crore to exporters through extension of various export promotion schemes for the labour-intensive segments like textile, handicrafts and leather.

Continuing the overall tone of the Foreign Trade Policy (FTP 2009-14) unveiled in August last year to arrest and reverse the declining trend of exports the government while modifying the policy decided continuation of virtually all schemes doling out sops in one form or other to exporters to help them see through the fragile economic recovery globally.

Given the fact that slow pace of global economic recovery is coming in the way of India’s export growth momentum, the overwhelming expectation was that the government would come out with more innovative export promotion schemes. Such an approach, of course, would have cost the national exchequer more. In a bid to counter ripple effect of global slowdown on export the Centre has so far extended export-stimulus packages worth about Rs 2,300 crore. Even though the commerce ministry has been keen to extend more sops to exporters the resources constrains appears to have come in the way of doling out sops of larger scale. As Sharma said, “it is simply not possible to sustain support to all sectors. What we must ensure is that those sectors which are still not doing well are extended necessary support. We also have to be conscious of the need for and the inevitability of fiscal consolidation. The level of resource available today may not be a

However, at the same time the annual supplement to the FTP has subtly hinted that given the fragile global economic scenario, which is having an overwhelming bearing on the overall export performance, the growth of export will continue to be dependent on continuation of ongoing export promotion schemes.   

As Sharma has said “the economies around the world are still emerging out of the shadows of a grim recessionary period. It is expected that the developed countries would aim at economic recovery through consolidation and export led growth. This would pose a challenge to our exporters in accessing overseas markets for their products.”

Ripple effect

Thus the government has found it prudent to persevere with the policy stance of FTP chartered last year and provide benefits for sectors that are still struggling. The growth momentum of country’s export, which was witnessing an average growth rate of over 25 per cent consistently, received a serious set back when the ripple effect of global financial crisis started hitting the economy.

Export showed first sign of decline in October last year in the wake of shrinkage of demand for Indian merchandise in country’s major importing countries like the US and European countries following setting in of global slowdown triggered by financial meltdown in the US. In fact, since October 2008 India’s export, which was acting as engine of growth, started to decline consistently for the next 13 consecutive months. Only in November 2009, export growth turned positive posting an 18 per cent growth.
In a bid to arrest declining trend in export the government rolled out various stimulus packages in various segments of export. In the FTP, government adopted a multi-pronged strategy to arrest and reverse the declining trend of exports.

Main elements

Through the Annual Supplement 2010-11 to FTP the government in order to ensure stable policy regime has continued with certain important schemes which have helped exporters. For instance, notable export-promotion schemes, which have been extended to boost export, include the popular and exporter friendly Duty Entitlement Passbook (DEPB) scheme, subsidised interest on credit borrowed for export and sops for import of capital goods for manufacture of wide range of products for export.

While extending various ongoing export promotion policies, he made it clear that the popular DEPB, under which taxes are reimbursed to exporters and has been in vogue for more than a decade, was being extended till June 30, 2011 for the last time.

The government is already under pressure to drop the DEPB as it is being perceived incompatible with the global trade rules under World Trade Organisation (WTO). There is a possibility that extension of this scheme will again attract objections in the future WTO talks.

In a bid to ensure availability of concession export credit the government further extended the popular interest subvention of 2 per cent for pre-shipment credit, which is already available for labour-intensive sectors like handloom, handicraft, carper and small and medium enterprises (SME), to other sectors like engineering, leather, textiles and jute till March 31, 2011.

To give instantaneous benefits to such sectors still hit by global slowdown the annul review of FTP extended a two per cent bonus incentive under the Focus Product Scheme (FPS) to as many as 135 items. These include handicrafts, handlooms, silk, carpets, leather products, sport goods, toys and bicycles.  To promote export through technological upgradation the government extended zero duty EPCG scheme by one more year till March 31, 2012 for import of capital goods. The benefit of the scheme has been extended to cover segments like paper, ceramic products, glass, rubber, marine products, sports goods and toys.

Significantly, the annual supplement has indicated steps being contemplated by the government to reduce transaction cost of exports.

Currently, transaction costs are estimated at 7-8 per cent of the exports value. A Committee of Experts, which was constituted by the Commerce Ministry to examine the whole gamut of transaction costs and entire value chain of exports, is expected to submit its recommendations soon. Sharma has indicated that government will take necessary measures based on committee’s suggestions to reduce these costs by almost 40 per cent.

Industry friendly

The overall stance of continuity of various export incentive schemes has gone down well with the trade and industry. As the President, Federation of Indian Export Organisations (FIEO) A Sakthivel says, “given the current global economic scenario it is good that the focus of the policy has been on continuity of the existing schemes and to support labour intensive sectors such as leather, handicrafts, handlooms, tea, certain engineering products, textiles, silk carpets, marine, toys and sports goods.” 

Since the global recovery is still fragile and uncertain the exporting community has suggested the government should constantly review the situation with a view to fine tune its policies to address the emerging concerns.

In response Sharma has assured exporters that the government will carry out a comprehensive review of impact of FTP as well as policy initiatives undertaken in the Annual Supplement  on various segments of export in December this year and will take necessary measures to boost export. As export plays a vital role as engine of the overall economic growth sustained efforts should be made to evolve innovative and dynamic  measures in tune with the global as well as domestic economic environment to put country’s merchandise trade on trajectory of higher growth.