Foreign trade policy after review

G. Srinivasan

The World Trade Organization’s (WTO) recent assessment of the second half of 2017 to be buoyant for the global trade in merchandise goods has not come a day too soon as India’s exports in October shrank by 1.12 per cent in dollar terms and by four per cent in rupee terms, the weakest show since the 8.6 per cent decline in July 2016. Without hesitation, the exporting community put the blame on the inordinate delay in the settlement of refunds on input tax the authorities are indebted to them, following the rollout of the Goods and Services Tax (GST)and its clumsy implementation in the initial months. Whether it is the duty drawback receipt under the earlier schemes or the input tax credit in the new GST, which unifies all indirect taxes and leaves exporters with the lofty notion that exports are zero taxed, the nub of the issue is that the exporting community always looks forward to getting what is legally due to it for undertaking the national task of exports!
Be that as it may, the mid-term review of the five-year Foreign Trade Policy (FTP) package unveiled with much fanfare by new Union Minister of Commerce & Industry Suresh Prabhu on Monday in the capital, with a host of exporters assembled, did not disappoint them in the least. Even after a quarter century of trade liberalization, first launched in July 1991, the tendency to look to the government for support and subvention had not ceased for exporters of goods and services. This is notwithstanding the obvious milestones set by the country’s software exports sans much official backing in the overseas markets down the decades. For all, the thrust is on exports from labour-intensive and small and medium enterprise sectors by way of increased incentives to increase job opportunities.
Prabhu, being politically savvy and correct, did not dismay his constituency by ladling out largesse in the form of additional spurs aggregating Rs 8,450 crore that covers the earlier relief package announced for readymade garments and made-ups. In all, fillips for merchandise goods are worth Rs 4567 crore, comprising Rs 749 crore for leather and footwear, Rs 1354 crore for agriculture and related produce, Rs 759 crore for marine exports, Rs 369 crore for telecom and electronic items, Rs 921 crore for handmade carpets, handloom, silk, coir and jute; Rs 193 crore for medical and surgical equipment and Rs 2743 crore for textile products. For services exports the goodies cost Rs 1,140 crore to benefit a range of service providers from educational, hospital, hotels/restaurants, business, legal, accounting and architectural professionals. The benefits bestowed to exporters are through the Merchandise Exports from India Scheme (MEIS) -- the consolidated outcome of five different incentive schemes under the earlier policy for rewarding merchandise exports and the Services Export from the India Scheme (SEIS), which replaced the quondam Served from India Scheme. Both MEIS and SEIS were announced in the FTP in April 2015. The FTP also announced then a new scheme, Trade Infrastructure for Export Scheme (TIES), to be implemented from the current fiscal for three years.
Under the MEIS, identified sectors are accorded duty-exemption scrips, which are computed at a certain percentage of the total value of their exports, and these could be used to disburse duties on inputs and could be traded sans GST now. Validity of the scrips under the schemes has been increased from 18 to 24 months after the review, while raising the incentive rate by two per cent across-the-board for the twin schemes. Alongside, the review also let exporters qualify for the simplified processes, including a self-certification scheme for duty-free imports, a single-point digital contact to exporters with the Directorate General of Foreign Trade (DGFT) and for consignment-related queries and creating a logistics division in the Department of Commerce. No doubt, these are laudable measures in imparting trust and go a long way in gaining the confidence of the exporting community, provided there is no state-capture by egregious elements or black sheep in the trading community to take undue advantage of the trust reposed. The DGFT has been battling with exporters reneging on obligations to export after availing of the incentives earlier! For the exporters, the self-certification proviso would definitely reduce the time consumed in getting clearance from the Norms Committee for duty-free procurement to obtain DGFT imprimatur.
Eventually, exporters would not stop seeking sops even in a relatively liberal trading milieu but what the authorities must perforce have to zero in on in their unrelenting exertions to keep improving India’s share in global exports encompass much lower transaction costs, less cumbersome clearances even as 86 per cent of the exporting community is digitally governed with no direct interface with officials and plausible labour laws that give exporters the flexibility to meet their seasonal demands abroad. The moot point is how long we play around the periphery without concentrating on the crux to vastly improve our share in global trade from the extant low level.
Rightly, the review has announced the deadline for the launch of the e-wallet system from April 2018 to ensure zero-rating of exports and solve the working capital blockage. A separate account for export-related transactions and review of the refund formula would eventually enable in fostering a transparent and WTO-friendly refund scheme and e-wallet, trade policy, analysts say.
In the final analysis, if what Commerce Minister Prabhu claimed in his keynote address, while releasing the contents of the mid-term review that the FTP would leverage the long-term benefits of the historic reform of the GST in terms of reduced compliance and logistics costs were to be realized, much needs to be done to improve physical infrastructure and pruning the processes to a manageable level so that exporters could stay focused on penetrating new markets and diversifying into new products. (IPA)

Tuesday, 12 December, 2017