Foreign Trade Policy: Hopes die, promises remain unfulfiled

The Financial Express, April 10, 2008

The annual supplement of the foreign trade policy (FTP) 2004-09, to be announced by commerce and industry minister Kamal Nath on April 11, would be the last edition of the FTP series by the UPA government. But an announcement made at the beginning of the series regarding setting up of the Inter State Trade Council has not yet seen the light of the day. The Council was envisaged as an institutionalised dialogue mechanism between the Centre and the states to make sure that all the export-friendly measures taken by the Centre are implemented smoothly across the country.

Operationalising such an institutional mechanism could have helped since states are in charge of VAT refunds for exports and in awarding exemption from some state levies. The Council could have solved several obstacles faced by exporters proper implementation of the single-window clearance mechanism of the Special Economic Zones Act as well as labour reforms and treating export units as essential services to thwart flash strikes by workers. Pointing out the inordinate delays in VAT refunds, exporters have demanded that discussions on awarding them exemption from VAT also could have happened through such a Council.

Pradeep S Mehta, secretary general, CUTS International, said, “This is an example of policy inertia on the Centre’s part. But the states are equally to be blamed as there was no enthusiasm on their side. And now, with polls around the corner, the states will not push for any policy agenda. The Council could have been a platform to help states to be a part of the Centres efforts in reforms on procedures regarding exports, imports and also on strategies for talks on WTO.”

Nagesh Kumar, director general, Research and Information System for Developing Countries, said, “The commerce and industry minister should be given the credit for bringing in the thinking that employment generation could be integrated with export strategies. But lot of reforms remain to be done in removing infrastructural bottlenecks, and in easing custom valuations as well as trade facilitation procedures. The government also has not addressed the problems created by inverted duty structure.”

Another unkept promise is doing away with the restrictive requirement of block-wise fulfilment of export obligation under the export promotion capital goods scheme. The scheme allows for concessional duty on imports against an export obligation. The period for fulfilment of export obligation is calculated from the date of issuance of EPCG licence.

Though there is no export obligation for the first two years, there is an obligation of 15% of the total production in the third and fourth year. Also, there is an obligation of 35% in the fifth and sixth year, and 50% in the seventh and eighth year. The commerce ministry had done away with the block-wise requirement due to complications involved in monitoring the exports at every stage. However, sources said this was rolled back at finance ministry’s insistence.

Also, though the commerce ministry had announced that export of high-tech items will be given a duty credit of 10% of the incremental export growth, high-tech products were granted export benefit equivalent to only 5% of incremental growth in exports. Another unfulfilled promise is regarding treating supply of stores as well as refuelling of long-distance flights as exports and entitling them for benefit like duty neutralisation under export promotion schemes.

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