Sops for exports

The annual review of foreign trade policy announced this week shows a continuity in the ideas that underline the five-year policy framework, both on the negative and positive sides. The accent on promotion of manufactured products is welcome, since this is the weaker side of the export sector. They need more support than services which can take care of themselves. Manufacture is also important because the majority of the items in the category come from the small and medium sectors which are employment-intensive. 

Slackness in exports in this area will have an impact not only in simple monetary terms. It will also affect the welfare and livelihood of large numbers of people. That is why the sops amounting to over Rs 1,000 crore handed over to exporters in the labour-intensive sectors like  handicrafts, leather and handloom can be said to serve a good purpose. Though sops in the export sector might ultimately do harm to the beneficiaries who might only lose their competitive edge, in certain situations they are needed. They actually have a social dimension.

The duty entitlement passbook scheme which allows import at zero duty of inputs needed for export production has been extended for one more year. The scheme has to be discontinued at the end of this period because it is not compliant with WTO rules. Another concession, the export promotion capital goods scheme, has also been extended till 2012. Exporters have to be ready in the longer term for the termination of these sops and build strategies to sail on their own strength. Weak global recovery has been constraining them. The US and Europe are still India’s main export markets. Attempts to diversify the markets will help in adverse conditions.  There has been a shift in the recent past to non-traditional markets like Africa, West Asia and Latin America.

This year started with a robust growth in exports but last month saw the momentum waning partly because of the base year effect. But the government is confident of achieving the $ 200 billion target for the current year. Ideally the target should have been achieved or surpassed without the help of sops. A more competitive production culture, provision of better infrastructure and further simplification of rules and procedures can greatly improve the performance in the coming years.

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