FTP has achieved its objectives

EXIM MATTERS

Exactly four years back, the Commerce Ministry replaced the Export and Import Policy (2002-07) with a new Foreign Trade Policy (FTP) for the period 2004-09. The FTP aimed to double India’s share in world merchandise trade in five years and act as an effective instrument of economic growth by giving a thrust to employment generation.

The boom in world trade has ensured that the objectives of FTP are achieved within a shorter time frame, although there may be questions about the composition of exports as the petroleum products seem to have contributed more to export growth of over 20 per cent. But, is it only the favourable conditions in the world trade environment or the FTP also that had something to do with stellar growth in exports? I think the FTP did help.

Firstly, the FTP continued the Duty Entitlement Passbook (DEPB) scheme, despite opposition from finance ministry. DEPB rates have also been relatively generous. The All Industry Rates of Duty Drawback have also been relatively charitable. The implicit subsidy in these schemes has helped exports.

Second, the FTP put in new schemes like Focus Product Scheme, Focus Market Scheme etc. to help exports from rural and semi-urban areas of employment intensive products and exports to countries where our exporters have little presence. These schemes operate like direct export subsidies.

Third, the Special Economic Zones (SEZ) Act, 2005 and SEZ Rules, 2006 have given a fillip to investments in export related infrastructure projects.

The SEZ laws were in the making since 2000 but Kamal Nath became a driving force to get them through the legislature and refused to buckle down when the SEZ Policy came under assault.

As the controversy regarding the Nano plant at Singur shows, land acquisition is not a SEZ-specific issue. However, the government has put in place a policy for such acquisitions that has broad acceptability.

Fourth, the Export Promotion Capital Goods (EPCG) scheme has survived with the duty under the scheme revised downwards to 3 per cent. There is no dearth of businesses that have looked to export only with a view to take the benefit under the scheme.

The difficult achievement of Nath is persuading the finance ministry to grant refund of service tax on export related services, extend income tax concessions for EoUs and get a package of sector specific relief measures for exporters affected by strengthening rupee.

The FTP has its share of bungling. Nath replaced the Duty Free Replenishment Scheme (DFRC) without giving much thought to the merits of the scheme. Its successor, the Duty Free Import Authorisation (DFIA) scheme is poorly thought out and has led to lot of litigations on the issue of taking Cenvat Credit. The Target Plus scheme was also poorly thought out, benefiting the dishonest and a few biggies. The FTP has also perpetuated complexities and license raj, encouraging more corruption in the offices of Director General of Foreign Trade, Customs and Excise. There is little break through from the earlier policy. The improvements are incremental.On balance, few can argue against better exports, growth or employment figures. Within the available policy space that he perceived, Kamal Nath has done well. He could have done better.

tncr@sify.com