The foreign trade policy, likely to be announced on 19 April, will focus on reducing transaction costs for exporters, expanding existing export incentive schemes and will include a replacement for the duty entitlement passbook (DEPB) scheme by September.
This is an annual supplement to the five-year foreign trade policy announced in 2004.
This year’s export target, in the wake of the strengthening rupee and the dismal performance in the last three months, is likely to be kept at a modest level of $135-140 billion. The government had set an export target of $125 billion for the fiscal 2006-07, which is likely to be missed.
Ministry officials said the policy would include more items under the three export incentive schemes, Vishesh Krishi and Gram Udyog Yojana, the Focus product and the Focus market scheme.
“Last year, the finance ministry had put a ceiling of Rs650 crore for the three schemes. This year, they have agreed to enhance the ceiling marginally. We have been allowed to include more items so long as we stay within the enhanced ceiling,” the official said.
Under the Yojana, the government gives a duty-free scrip, worth 5% of the free-on-board (f.o.b.) value of exports. The Focus product scheme provides incentives for exporting products that have high employment potential in rural and semi-urban areas. It allows duty credit facility at the rate of 2.5% of the f.o.b. value of exports—up to 50% of the export turnover of notified products, such as value-added fish and leather products, stationery items, fireworks, sports goods, handloom products bearing the handloom mark and handicraft items.
The Focus market scheme aims at offsetting the high freight cost and other disabilities faced in accessing select international markets, allowing duty credit facility of 2.5% of the f.o.b. value of exports of all products to the notified countries.
People familiar with the policy said the ministry was examining a suggestion for inclusion of cereals and plantation crops, such as tea and coffee, under the Yojana, especially in the light of a fall in agriculture exports. There is also a suggestion to include items such as carpets under its purview. The Focus product scheme is likely to be expanded to include some high-value manufacturing goods while the Focus market programme will be expanded to cover the Commonwealth of Independent States.
The foreign trade policy is also expected to announce the formal end of the very popular DEPB scheme.
“The finance ministry has allowed DEPB to continue until 31 March 2008. The new scheme will be prepared by September 2007 and the two schemes will be allowed to overlap for six months. The existing DEPB scheme will lapse after 31 March 2008,” said a senior commerce ministry official who did not wish to be named.
The finance ministry has been pressing to discontinue the scheme on account of revenue loss, estimated to be Rs4,873 crore in 2006-07, down from Rs5,650 crore in 2005-06. The scheme, introduced in 1997, offers a reimbursement of basic and special customs duty paid by an exporter in the form of credits that can be encashed at the end of the year.
The commerce ministry is also exploring several options to reduce transaction costs and time. This includes repetitive form filling by exporters. Instead, it is looking to empower the Directorate General of Foreign Trade, the nodal department dealing with export-import matters, to use its database on a trader’s import-export code (IEC) when an exporter applies for a licence. In this way, the exporter will not be required to fill up tedious background data every time he or she files for an export licence.
“Several licences of schemes, like DEPB or the export promotion capital goods scheme, require information such as the date of establishment of the company, details of the directors, the description of the products which are all contained in the IEC code. Hence, the DGFT should merely seek the IEC and the name and address. The ministry is favourable to doing away with the duplication of seeking this information,” says an official in the know of the development, who did not wish to be identified.
According to K.T. Chacko, director, Indian Institute of Foreign Trade, “the avoidable transaction costs in India constitute around 2-3% of the f.o.b. value of exports. These costs are a fraction in competing economies like China.”
Ganesh Gupta, president of the Federation of Indian Export Organizations said: “At this point of time, there is not much option available with the government because of fiscal constraints. The government should take all the action which could save the exporter both transaction cost and time.”