Prospects of recovery in some sectors

When the year 2009 dawned, there was widespread apprehension on how the export sector would cope with the recession in the rich countries. Throughout the year, the government took various steps to help exporters and, as a result, the mood at the year-end is far more upbeat, although some sectors like textiles, leather and handicrafts still face uncertain prospects.

During the year, the government continued the Duty Entitlement Passbook Scheme (DEPB) and drawback scheme at higher rates that were justified when the rupee had appreciated to about Rs 39 to a US dollar at the end of 2007. Continuation of higher rates even when the rupee had depreciated to almost Rs 50 to a US dollar meant an implicit subsidy of about 20 per cent.

The decision to continue the DEPB scheme till the end of 2010 gave necessary assurance to the exporters about Policy stability. Increase in the duty credit rates under the less impactful subsidies through the Focus Market Scheme and Focus Product Scheme also helped.

Commerce Minister Anand Sharma decided to opt for stability in the Foreign Trade Policy and give some incremental benefits to exporters by way of the zero-duty Export Promotion Capital Goods (EPCG) scheme and Status Holders Incentives Scrips (SHIS) scheme. The decisions to continue the interest subvention scheme for select sectors, higher coverage under the Export Credit Guarantee scheme, higher refinance for export credit and also to release more funds to clear the backlog under the technology upgradation fund and deemed exports schemes also helped.

The global slowdown hit the Special Economic Zones (SEZ) scheme, as more developers opted to abandon their plans and to get their SEZ denotified and entrepreneurs hesitated to get into the SEZ merely for the attraction of tax benefits. According to the commerce ministry, however, even during the current economic meltdown, SEZ have registered impressive growth in exports, investment and employment generation. The lowering of excise duty rates, continued uncertainty over income-tax benefits for export-oriented units (EoUs) beyond 2010-11, and the prospects of Direct Taxes Code doing away with the benefits prompted many EoUs to exit the scheme.

The commerce ministry moved ahead with free trade agreements (FTAs), with the Asean pact being the most significant. India signed a Comprehensive Economic Cooperation Agreement with South Korea, pushed ahead towards a similar agreement with Japan and set up a Joint Task Force to study in detail the feasibility of India-China Regional Trading Agreement.

In the multilateral negotiations also, the government toned down its rhetoric and adopted a more conciliatory tone without diluting its stand on protection to farmers. For a change, India looks more agreeable to taking the Doha Development Round to its conclusion by next year-end.

The quality of Customs notifications relating to export promotion schemes suffered significantly during the year. There is little relief for exporters from defective notifications that will lead to disputes. The anti-dumping and safeguard measures were also used fairly liberally to help the domestic industry cope with the cheaper imports, especially from China. However, tangible steps to help reduce transaction costs by simplifying procedures, adopting technology more extensively and training the staff to be less obstructive were lacking.

Overall, as a difficult year comes to a close, there are prospects of recovery in some sectors and positive export growth figures very soon.

E-mail: tncr@sify.com