Fear of DEPB abolition makes exporters jittery

Two years back, Anand Sharma took over as the commerce minister in the UPA-II Cabinet along with his Minister of State Jyotiraditya Scindia. He took over at a time when the global trade growth rate had taken a severe knock following the global financial crisis. He had a lot to prove in his new assignment. Today, the export growth rate figures show that he and his team have achieved their immediate objectives of reversing the declining trend but more challenges lie ahead.

Sharma preferred stability and continuity of the Foreign Trade Policy that he inherited, making some incremental changes to help exporters tide over the consequences of the global economic meltdown. He retained the policy on Special Economic Zones (SEZs). He preferred not to disturb any one or create any unpleasantness. He is seen as a sincere minister, busy with his work.

In his own quiet way, Sharma negotiated quite a few tax concessions from the finance ministry to help exporters tide over the immediate crisis in the markets. He introduced the zero duty Export Promotion Capital Goods (EPCG) scheme and the one per cent Status Holders Incentives Scrip (SHIS) scheme. He helped the exporters diversify the markets by including more countries under the Focus Market Scheme (FMS). He brought in more items under the Focus Product Scheme (FPS) and Market Linked Focus Product Scheme (MLFPS). He gave higher support (two per cent bonus) under these schemes to support export of select products that suffered due to global recession. He also took some steps to simplify procedures and reduce transaction costs. As a result and also due to improvement in global trading environment, export growth rates have shown remarkable turnaround and now the commerce ministry is hopeful of doubling the export figures of US$ 235 billion (2010-11) in the next three years.

Unlike his predecessor, Sharma has refrained from any theatrics at the multilateral negotiations forum at the World Trade Organization (WTO). He hasn’t annoyed anyone. So far, he has picked the right words to say and remain uncontroversial. Sensing that the time is not ripe for any new initiatives in that front, he has worked on more regional and bilateral trade agreements.

Sharma and his team have been taking forward the negotiations for trade deals with countries in Asia and Africa besides, Australia, New Zealand and the European Union. The cumulative effect of most of these efforts for free trade will be felt towards the end of this decade, although the phased liberalisations start much earlier.

Of late, exporters have been feeling a bit let down by Sharma and his team as the export credit and interest subvention scheme and tax concessions for export oriented units have come to an end. The imposition of Minimum Alternate Tax on Special Economic Zone (SEZ) Developers and SEZ Units besides withdrawal of Dividend Distribution Tax exemption for SEZ Developers has dented the confidence of the exporters about stability of tax policies. The prospect of abolition of the Duty Entitlement Passbook (DEPB) scheme by end-June is also making the exporters jittery. Sharma will have a tough time ahead pacifying exporters who will certainly protest if the DEPB scheme is withdrawn, without putting in place any alternative scheme.

In Sharma’s third year as commerce minister, exporters will watch out for his ability to stand up to the finance ministry.

Email: tncr@sify.com