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Interest subvention, duty credit sops to help exporters cope better with slowdown

Although the commerce ministry claims that exports have grown by almost 50 per cent in the first half of this year, Anand Sharma, the commerce minister, has found it necessary to give more incentives by way of duty credit scrips under various schemes to exporters. This follows the interest subvention scheme that the Reserve Bank of India (RBI) announced earlier in the week to help small exporters get cheaper export credit. Together, the steps will help exporters cope better with the global economic slowdown and especially the fall in demand in rich countries, besides the abolition of the Duty Entitlement Passbook Scheme.

It was widely expected that more items will be included in the Focus Product Scheme (FPS). This expectation has been met by including 130 more items that will earn two per cent duty credit under FPS. More items such as tractors, sugar machinery and high pressure boilers have been included in the market-linked FPS. The criteria or procedures followed for selecting certain products for grant of incentives and not others is far from transparent, although the stated policy is to encourage exports of labour-intensive products.

The decision to tweak the Focus Market Scheme so as to give higher (four per cent instead of three) duty credit for export to 41 countries is in keeping with the strategy to encourage diversification of export destinations. The decision to help apparel sector by extending the FPS to all items in Chapters 61 and 62 of the customs tariff is also in keeping with the policy to help employment-intensive sectors but it is doubtful if this highly fragmented sector can get more competitive and achieve significant export growth.

The new Special Bonus Benefit Scheme, which gives one per cent additional duty credit for 50 select items in the engineering and chemical sectors for a period of six months, will help but also raise questions regarding the criteria adopted and why certain items get the benefit, and not the others. Sharma should opt for transparency and specify criteria that will be adopted for inclusion of more items for grant of incentives.

The changes in the policy for import of firearms, lifting import restrictions on certain items, taking forward the EDI initiatives etc. are in keeping with the times. The new scheme of ‘Niryat Bandhu’ to help first-generation entrepreneurs is idealistic and sounds nice but may not amount to much.

A very useful procedural change that will help exporters regularise many pending advance licence/authorisation cases is the one relating to clubbing of licences or authorisations. The revised provisions have come into effect after the Director General of Foreign Trade (DGFT) put up the proposed changes in the public domain and invited comments from the parties concerned. The end result is a very practical and sensible change that will definitely reduce the need to approach the Policy Relaxation Committee in DGFT headquarters very often.

DGFT has also put up on the website a proposal for comments from the trade on revised procedures for redemption/regularisation of advance licence/authorisation cases on the basis of self-declaration of exporters. This very welcome proposal, when implemented, will help reduce transaction costs.

The major disappointment in the annual review is the absence of steps to streamline the deemed exports scheme. Exporters were also expecting some relief in the condition for maintaining annual average exports under the Export Promotion Capital Goods scheme.