S B Mohapatra: Agriculture sector gets due recognition

Free import of capital goods will give a boost to agricultural exports

The long-awaited Foreign Trade Policy is the first major policy announcement of the new government relating to India's Exports and Imports.

In the past, the Exim Policy mainly dealt with removal of QRs and also provided detailed procedures relating to Advance License, EPCG, DEPB and other export promotion schemes. With the phasing out of QRs and simplification of export procedures, these issues have become secondary. During the last year, the export growth was impressive as it reached the level of $63 billion, but it is only 0.8 per cent on the total Global Export. The objective of the policy is to double India's percentage share of global trade by 2009.

Sustained effort is to be made and appropriate policy framework has to be provided so that the CAGR has to be more than doubled. Achieving such a target may not be impossible, but it is not an easy task either. The policy has announced a special package for agriculture. Continuing free import of capital goods and 5 per cent duty-free import entitlement of the FOB value of export will give boost to agricultural export. There are other critical issues than agricultural issues which need to be addressed.

If agro based exports are to boost, it is essential that contract farming is introduced in a big way. This will require an amendment in land reforms laws in various states to be complimented by the Central legislation. Besides production of exportable quantity of horticulture items, adequate growth facilities have to be provided to farmers.

Simultaneously, storage and warehousing and other general facilities have to be established. Besides special crop insurance scheme and price stabilisation mechanism has to be established since price fluctuation in the international market in these goods is quite frequent and also has direct bearing the domestic prices.

One of the welcome features is the emphasis given on handloom and handicrafts sector, which has a very high potential for growth. While such exports are more than $2 billion, it can easily be doubled or tripled in five years. Setting up of Special Economic Zones for handicrafts and liberalisation of imports could help, but more important than this is to provide funds for establishing warehousing facilities abroad to reduce the delivery times.

A new scheme to encourage large volume growth in export, ie, Target Scheme has been announced. Earlier also a similar scheme was in operation, but could not take off due to legal disputes. Certain provisions of the EPCG scheme has been liberalised. With a view to speed up the process of technology upgradation, since the general trend is to reduce the duty on capital goods, under EPCG scheme has gradually lost its worthiness.

Instead of retaining the EPCG scheme, perhaps drastic reduction of import duty on capital goods specially meant for technology upgradation and export production would have been a better alternative. The exporters were apprehensive regarding the continuation of DEPB scheme. The scheme has attracted averse notice of WTO and therefore, needs to be recast. There are two similar Schemes ie, the Duty Drawback Scheme which is being implemented by the finance ministry and DEPB scheme by the commerce ministry.

There is, therefore, a need to rationalise and come out with a unified drawback system. It may be mentioned that under the WTO rules it is not possible to provide direct incentive or subsidy to exporter. The maximum the Government can do is to reimburse the actual duty paid on exports. For this purpose a simple transparent system should be in place without any further delay.

Another significant feature of the policy is to allow import of second hand capital goods without any age restriction. Earlier specified second hand capital goods of more 10 year old were permitted for textile sector as a special case . Now this facility has been extended to all sectors.

It is expected that the scheme will help in increasing the manufacturing capacity of the domestic industry. However, if our manufacturing sector has to stand competition we have to buy the state-of-art technology.

There is no point in encouraging import of 20 or 25 year old machinery. If the country has to become globally competitive, acquiring old technologies and equipment may not be the best way to achieve this.

As regards procedural simplifications, the exporters will welcome the new incentives for export with minimum turnover of Rs. 5 crores and exemption given from bank guarantee. This was a long pending demand of small medium exporters and this should definitely help them in reducing their transaction costs. Besides exemption of service tax was also a legitimate demand of exports and the government have considered the case.

The past policy highlighted the importance of SEZs but so far not many SEZs have really become operational. The Commerce Ministry should re-examine these policies relating to SEZs and ensure that at least 15-20 SEZs become operational in the next 2 or 3 years. The large corporate houses should be encouraged to provide some incentives to SEZs.

Finally success of the EXIM policy largely depend on the infrastructure facilities that is provided. Today, the exporters are suffering from many handicaps like high rate of interest, lack of transport facilities and inefficient working of ports. In addition, the rising oil prices is a cause for worry.

Exporters, particularly garment exporters, have been demanding for liberlisation of labour laws. The Foreign Trade Policy does not give any indication about present Government's thinking in this regard.

(The author is former secretary, textile and DGFT)