Govt cuts duty on various items to combat inflation

NEW DELHI: The government on Tuesday announced more measures to combat inflation and discipline industry, which together covered the strategies of saam (kind words), daam (material inducement), dand (penal measures) and bhed (threats and abuse) recommended by Indian tradition to persuade recalcitrants.

The Prime Minister appealed to the industry to show restraint and not abuse market power, and to hold the price line.

The Finance Minister announced tax concessions, duty cuts and export disincentives, and declared that the government would consider adopting ‘administrative measures’ to discipline sections of the industry taking undue advantage of short-term shortages.

The Finance Minister extended tax waivers for refineries and export-oriented information technology enterprises and exempted all categories of electric vehicles from excise duty.

The fiscal package includes export duties on select steel items and basmati rice, which seek to make exports costly and augment domestic supplies. At the same time, customs duties have been cut on steel, ferro alloys, coking coal, zinc, skimmed milk and butter oil to ease supply crunch and soften prices. The import duty on newsprint, too, has been cut from 5% to 3%.

Concluding the debate on the Finance Bill, Finance Minister P Chidambaram said the UPA government’s policies — fiscal, monetary and financial — were aimed at making growth inclusive. The Lok Sabha passed the Finance Bill 2008-09.

The rejig in the tax structure to counter inflation, however, would leave the exchequer poorer by Rs 1,500 crore. These anti-inflation measures primarily target steel, which contributes a fifth of the current spurt in prices — inflation is at a three-year high of 7.33%.

Proposing these changes to the Finance Bill, Mr Chidambaram said: “Currently, steel and steel products contribute about 21.3% of inflation.

The objective of containing domestic prices will not be achieved unless we augment the domestic supply/availability of intermediates and finished products. Despite a slowdown during 2007-08, the value of exports of steel items was as high as Rs 26,000 crore in that year. Against this background, there is a case for disincentivising the export of steel.”

While the government has taken the approval of the House to impose up to 20% export duty on steel, it has imposed variable duty at the rate of 15%, 10% and 5% depending on value addition and the consumption of products in the domestic market. Besides, basic customs duty on hot-rolled coils and cold-rolled coils has been reduced from 5% to nil. Imports of inputs like zinc, ferro alloys and met coke — used in the production of steel — have also been exempted from customs duty. Countervailing duty on TMT bars and structurals commonly used for construction of houses has been scrapped, to augment supply via imports.

Export duty has also been imposed on basmati at the rate of Rs 8,000 per tonne even as its minimum export price (MEP) has been reduced roughly by the same amount, from $1,200 per tonne to $1,000 per tonne. The move is expected to cool prices of rice that have risen by 20% over the past year. Customs duty on skimmed milk powder has been cut from 15% to 5% for a Tariff Rate Quota of 10,000 tonnes per annum. Similarly, customs duty on butter oil, which is used for reconstituting liquid milk, has been cut from 40% to 30%. While changes in import duty rates will be effective from Tuesday, changes in export duty will come into effect on the date the Finance Bill, 2008, receives the President’s assent.

The government has managed to bring cheer to the IT sector. Bowing to popular demand, the tax holiday for Software Technology Parks of India and export-oriented units (EoUs) under Sections 10A/10B of the Income Tax Act has been extended till March 31, 2010. This comes even though the Kelkar taskforce and the Prime Minister’s Economic Advisory Council failed to favour extension of the tax holiday.

The good news, however, is not limited to IT. The seven-year tax holiday for oil refining companies has also been extended till 2012. However, the extension would benefit refineries that were either notified by the government before March 31, 2008, or are wholly-owned by the public sector, or companies in which 49% is with the public sector or companies that begin refining on or before March 31, 2012. However, the issue of whether natural gas is eligible for tax benefits available for crude exploration has been left to be settled by courts. “I may assure potential bidders that the benefit of Section 80IB(9), as finally interpreted by the courts, will be applicable to all exploration & production contracts, whether obtained through nomination or bidding,” he said.

The Agriculture Produce Marketing Committee and the state agricultural marketing boards, which are registered as charitable institutions, will continue to enjoy income-tax exemption. So, will the chambers of commerce and similar organisations rendering services to their members, which will not be affected by the change in the definition of charitable institutions. Some relief has also been given to assessees on account of tax deducted at source in cases where it was deducted and not paid in time under Section 40(a) of the Act. Income-tax exemption to the Coir Board will now be applicable with retrospective effect from April 1, 2002.

While extending tax sops, the finance minister expressed hope that exemptions can be done away with and tax rates lowered. “Eventually, we would have to move towards a system of taxation where the exemptions are few, each exemption is reviewed periodically and each exemption comes to an end after a reasonable period of time. I am confident that the new Income Tax Code that will be placed in the public domain for discussion will reflect my philosophy in this regard and I hope that, in due course, the new Income Tax Code will, after deliberations, become law.”

Taking a dig at members who had raised the issue of increasing tax rates for rich people and corporates, he said: “I think I would not be revealing any secret if I say that every request for exemption has the support of one or more Members of this House, irrespective of political affiliations.”

He also pointed out that the tax to GDP ratio had increased from 9.2% in 2003-04 to 12.5% at the end of 2007-08 and the cost of tax collection on the direct taxes side is 60 paise per Rs 100 and on indirect taxes side, 65 paise per Rs 100. He said state governments were drawing benefits of this revenue boom and had become fiscally more sound.

Green is in. The government has exempted two-wheeler and three-wheeler electric vehicles from excise duty to promote emission-free and environment-friendly transport. Earlier, the Finance Bill had proposed to exempt just electric cars from excise duty. The packaged cement would now attract an ad valorem duty of 12% on retail sales price instead of specific duty of Rs 600 per metric tonne on Rs-250 bag of 50 kgs. Rechargeable kits of water filters that run without electricity have been exempted from 14% excise duty. Excise duty exemption has been restored to projectile type of shuttle-less looms as it is still not manufactured in India.

On the customs duty front, the government has extended the full exemption to cut and polished coloured gemstones and rough synthetic gemstones that currently attract 5% duty. Customs duty has been reduced on newsprint against the backdrop of rising newsprint prices from 5% to 3%. Customs duty has been raised from 30% to 50% in lieu of the safeguard duty on tapioca starch to protect the domestic industry. With a view to providing a level-playing field to domestic units, it is now being prescribed that EoUs would be liable to pay anti-dumping duty on imported inputs either sold directly or contained in finished products that are sold in the domestic market.

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India Scraps Import duties to Curb Prices

April 29 (Bloomberg) -- India today scrapped import taxes on pig iron and other steel products to bolster domestic supplies and curb inflation, holding near a three-year high.

The country will also levy export taxes on steel products including cold-rolled coils, Finance Minister Palaniappan Chidambaram told lawmakers in parliament today.

The import duty cuts, effective today, will cost the government 15 billion rupees ($371 million), Chidambaram said. Anti-inflation measures announced earlier would have cost the government 48.4 billion rupees, he said.

Wholesale prices rose 7.41 percent in the last week of March from a year earlier, the most since November 2004, according to government data. Price gains eased to 7.33 percent in the week ended April 12.

The export taxes will take effect when the budget proposals get the assent of the president, Chidambaram said.

The following are details of import duty changes:

* Basic customs duty reduced to zero from 5 percent on imports of
pig iron and mild steel products, including sponge iron,
granules, powders, ingots, billets, semi-finished products, hot-
rolled coils, cold-rolled coils, coated coil sheets, bars, rods,
angle shapes, sections and wires.

* Countervailing duty scrapped from the current 14 percent on TMT
bars and structurals, commonly used for construction of houses.

* Basic customs duty scrapped from the current 5 percent on
metallurgical coke, ferrous alloys and zinc, three inputs used
for manufacturing steel.

The following are details of new export duty levies:

* 15 percent export tax on overseas sales of specified primary
forms, semi-finished products, hot-rolled coils and sheets.

* 10 percent export tax on specified roll products, including
cold-rolled coils, pipes and tubes.

* 5 percent export tax on galvanized steel in coil and sheet
form.

Other measures:

* Reduction of import duty on skimmed milk powder to 5 percent
from 15 percent for a tariff rate quota of 10,000 metric tons per
year.

* Reduction of import duty on butter oil, used for milk
production, to 30 percent from 40 percent.

* Imposition of an export tax of 8,000 rupees per ton on overseas
sales of basmati rice.

* Reduction in the minimum export price of basmati to $1,000 per
metric ton from $1,200.

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Export duty may hit steel cos in long run

MUMBAI: Finance Minister P Chidambaram’s imposition of export duty on steel has evoked mixed reactions. While the user industries feel the proposed export levy will pull down the prices of the metal in the domestic market, steel makers think the measure will be counterproductive and will affect the industry in the long run.

Executives of leading steel companies told ET that they have to honour the long-term export commitments with their overseas customers and, therefore, won’t be able to reduce supply in the international markets.

“It will only squeeze better realisation of domestic steel companies, which have been hard-hit by the rise in raw material costs in international markets. In addition, there are certain items, especially in flat products, which have few takers within India,” said an executive of a top steel company who did not wish to be named.

Exporters enjoy a premium of nearly $200 a tonne in the overseas market over the domestic industry.

Mr Chidambaram on Tuesday announced a 15% export duty on primary steel and HR coils and 10% duty on CR coils. However, customs duty on pig iron, sponge semi-finished HR coils, angel shapes has been cut from 5% to nil. He also announced abolition of customs duty on basic steel-making inputs like metcoke, ferro-alloys and zinc, as well as the countervailing duty on construction products like TMT bars.

An official of a real estate company said steel prices should come down on two counts. One, the basic principle of economics suggests that the measures would increase supply of steel in the domestic market and thereby create pressure on rising steel prices. Two, the measures will make metcoke prices cheap and thereby, will reduce the raw material cost.

Responding to this, an official in a steel maker said the proposed abolition of customs duty on metcoke will make the raw material cheaper by $25 per tonne. Coke prices have gone up to $300 a tonne from $96 a tonne in a year. So the impact will be negligible.
“Also, Indian steel makers are supplying to the world market after feeding the domestic market. Even if the entire export comes to a halt, it will have no impact (on the domestic prices),” he said. Last year, India produced nearly 60 million tonne of steel, exported 4.2 million tonne and imported 5.99 million tonne.

J Mehra, CEO of Essar Steel Holding said unless the government takes some long term measures such as facilitating additional capacities, steps like the one taken on Tuesday could be counter- productive.

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FACTBOX - Why have rice prices surged to record highs?

REUTERS - Asian rice prices have almost trebled this year and prices on the Chicago Board of Trade have risen more than 80
percent to hit successive record highs as export restrictions by leading suppliers fuel insecurity over food supplies.

With only 30 million tonnes traded annually, government supply curbs such as those from New Delhi and Hanoi have spooked importers such as the Philippines and Bangladesh, at a time when global stocks have halved since hitting a record high in 2001.

EXPORT CURBS:

* October 2007 - India, which was the world's second-largest rice exporter last year but is set to lag behind Thailand and the United States this year, bans exports of non-basmati rice to rein in prices and control inflation, but later in the month eased the ban on some superior varieties of the grain.

* March 2008 - India bans exports of non-basmati rice again as inflation hits a 14-month high, alarming policymakers.

* March 2008 - Egypt bans rice exports from April 1 to October to hold down local prices. The country normally produces about 4.6 million tonnes a year of white rice, leaving a domestic surplus of about 1.4 million tonnes for export.

* April 2008 - Vietnam, due to regain its position as the No. 3 exporter this year, extends a ban on rice sales until June to help stabilise domestic food prices as it tries to tame double-digit inflation. Prior to that, it had curtailed exports for March and April.

* April 2008 - Brazil temporarily suspends rice exports to safeguard domestic supply and keep prices of the basic foodstuff stable. Brazil, which is not a major global rice supplier, exported 313,000 tonnes of rice last year.

* April 2008 - Indonesia, Southeast Asia's largest rice consumer, says it would curb medium-grade rice exports to combat inflation. Under Indonesia's new rice export rules, state procurement agency Bulog is allowed to sell medium-grade rice overseas only when national stocks are above 3 million tonnes and domestic prices are below a government's target price.

SCRAMBLE TO BUILD STOCKS

* January 2008 - Bangladesh signs deals and starts importing

180,000 tonnes of white rice from neighbouring Myanmar. The Bangladeshi government and private traders started importing rice after crop losses caused by flooding last year.

March 2008 - The Philippines says it aims to import up to 2.2 million tonnes of rice this year to meet a domestic shortfall, in what could be the biggest overseas purchase of the staple in a decade. Local harvests have failed to keep up with expanding population, lifting inflation to a 16-month high.

* March 2008 - Costa Rica expects its rice imports to jump 31 percent to 190,000 tonnes in the 2008/09 crop year, which begins in July, as farmers replace some rice fields with other crops such as sugar cane and pineapple. Bad weather in the remaining rice-growing areas also has cut yields.

* March 2008 - Bangladesh says it would import 400,000 tonnes of rice from India to cushion the country's dwindling stocks. The imports, allowed under a government-to-government deal, would not be subjected to the rise in rice export prices.

* April 2008 - Singapore says it would allow rice importers to bring in more stock to meet increased demand amid consumer fears of a rice supply crunch and higher prices.

FALLING WORLD INVENTORIES

World inventories have fallen by nearly 50 percent from a record high of 147.1 million tonnes in 2000/01, although they have already recovered slightly from a low in 2004/05. They are expected to rise marginally by the end of this crop year.

SPECULATIVE BUYING

On the Chicago Board of Trade, financial speculators looking for the next big commodity play, have helped lift prices by about 80 percent this year to successive record highs. To a degree, hoarding by consumers has also fed the rise by spurring importers to seek supplies sooner.

DIVERSIFICATION OF LAND USE

In some countries such as the Philippines, production is failing to keep up with demand because paddy land is being overtaken for industrial development, or because farmers are seeking other trades. This is a longer-term issue that should contribute to supply tightness in the future.

GROWING DEMAND

In poor nations facing a doubling in wheat and corn prices, rice consumption is rising, but this is partly offset by falling per-capita consumption in big countries such as China. Data from the U.S. Department of Agriculture shows that consumption in China -- which accounts for 30 pct of world consumption -- has fallen by 3.9 percent over the past five years. But global consumption has risen by 2.7 percent over the same period, in places such as Nigeria, the Philippines and Bangladesh.

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Corporate Vultures Lurk Behind the World Food Crisis

UN agencies are meeting in Berne to tackle the world food price crisis. Heads of International Financial Institutions (IFIs), including Robert Zoellick, President of the World Bank (former U.S. trade representative) and Pascal Lamy, WTO's Director General, are among the attendees. Will the "battle plan" emerging from the Swiss capital, a charming city with splendid sandstone buildings and far removed from the grinding poverty and hunger which has reduced people to eating mud cakes in Haiti and scavenging garbage heaps, be more of the same -- promote free trade to deal with the food crisis?

The growing social unrest against food prices has forced governments to take policy measures such as export bans, to fulfill domestic needs. This has created uproar among policy circles as fear of trade being undermined sets in. "The food crisis of 2008 may become a challenge to globalization," exclaims The Economist in its April 17, 2008 issue. Not surprisingly then, the "Doha Development Round" which has been in a stalemate since the collapse of the 2003 WTO Ministerial in Cancun, largely due to the hypocrisy of agricultural polices of the rich nations, is being resuscitated as a solution to rising food prices.

Speaking at the Center for Global Development, Zoellick passionately argued that the time was "now or never" for breaking the Doha Round impasse and reaching a global trade deal. Pascal Lamy has argued, "At a time when the world economy is in rough waters, concluding the Doha Round can provide a strong anchor." Dominique Strauss-Kahn, Managing Director of the IMF, has claimed: "No one should forget that all countries rely on open trade to feed their populations. [...] Completing the Doha round would play a critically helpful role in this regard, as it would reduce trade barriers and distortions and encourage agricultural trade."

Preaching at the altar of free market to deal with the current crisis requires a degree of official amnesia. It was through the removal of tariff barriers, made possible by the international trade agreements, that allowed rich nations such as the U.S. to dump heavily subsidized farm surplus in developing countries while destroying their agricultural base and undermining local food production. In Cameroon, lowering tariff protection to 25 percent increased poultry imports by about six-fold while import surges wiped out 70 percent of Senegal's poultry industry. Similarly reduction of rice tariffs from 100 to 20 percent in Ghana as a result of the structural adjustment policies enforced by the World Bank, increased rice imports from 250,000 tons in 1998 to 415,150 tons in 2003. In all, 66 percent of rice producers recorded negative returns leading to loss of employment. Vegetable oil imports in Mozambique shrank domestic production from 21,000 tons in 1981 to 3,500 in 2002, negatively impacting some 108,000 small-holder households growing oilseeds.

Developing countries had an overall agricultural trade surplus of almost $7 billion per year in the 1960s. According to the Food and Agricultural Organization (FAO), gross imports of food by developing countries grew with trade liberalization, turning into a food trade deficit of more than $11 billion by 2001 with a cereal import bill for Low Income Food Deficit Countries reaching over $38 billion in 2007/2008.

Erosion of the agricultural bases of developing countries has increased hunger among their farmers while destroying their ability to meet their food needs. The 1996 World Food Summit's commitment to reduce the number of hungry people -- 815 million then -- by half by 2015 had become a far-fetched idea by its 10th anniversary. U.N. Special Rapporteur on the Right to Food, Jean Ziegler, reported last June that nearly 854 million people in the world-one in every six human beings-are gravely undernourished.

So on who's behalf are the heads of the IFIs promoting the conclusion of the Doha Round and further liberalization of agriculture. While Investors Chronicle in its April 2008 feature story, "Crop Boom Winners" explores how investors can gain exposure to the dramatic turnaround in food and farmland prices, a new report from GRAIN, Making a Killing from the Food Crisis, shows Cargill, the world's biggest grain trader, achieved an 86 percent increase in profits from commodity trading in the first quarter of 2008; Bunge had a 77 percent increase in profits during the last quarter of 2007; ADM, the second largest grain trader in the world, registered a 67 percent per cent increase in profits in 2007. Behind the chieftains of the capitalist system are powerful transnational corporations, traders, and speculators who trade food worldwide, determine commodity prices, create and then manipulate shortages and surpluses to their advantage, and are the real beneficiaries of international trade agreements.

The vultures of greed are circling the carcasses of growing hunger and poverty as another 100 million join the ranks of the world's poorest - nearly 3 billion people who live on less than $2 a day. Agriculture is fundamental to the well-being of all people, both in terms of access to safe and nutritious food and as the foundation of healthy communities, cultures, and environment. The answer to the current crisis must be centered on small-scale farmers producing for local and regional markets. It is time for the developing countries to uphold the rights of their people to food sovereignty and break with decades of ill-advised policies that have failed to benefit their people.

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Nathu la Sino-India trade to from May 1

The annual trade between the traders of India and China at Nathu La would start from May 1 this year, a Sikkim government official said today.

"We are in the process of verification of the applications of the traders before issuing them passes for participation in the trade at Nathu La," the District Collector (East) Vishal Chauhan told PTI here.

A function would be held at Nathu La frontier to mark the formal inauguration of the annual trade on May one and thereafter, the traders of the two countries would participate in trade of various commodities as per the list of goods released by the two countries for export and import, he said.

Meanwhile, the Indo-China Traders Association of Sikkim (ICTAS) demanded an upward revision in the number of items to be exported by the Indian traders at Nathu La mart in order to make the business financially viable for the traders.

"We had put up a demand with the union commerce ministry for an increase in the list of items from the present 29 to 100 in order to make the border trade more viable for our traders," the ICTAS president Anil Kumar Gupta said.

The low volume of business was the major concern of the Indian traders over the past two years which should be addressed by the concerned authorities by expanding the lists of items, he said.

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Govt. open to reviewing SEZ Act, says Nath

New Delhi (PTI): Facing flak from Opposition as well as supporting Left parties on the SEZ issue, the government on Tuesday said it is open to reviewing the law governing the special economic zones.

The Government also ruled out FDI in retail sector, an area which has come under sharp criticism from traders and parties across the political spectrum.

Allaying apprehensions expressed by members during a discussion in the Rajya Sabha on working of his Ministry, Commerce and Industry Minister Kamal Nath said, "we will review the SEZ Act if we find it requires revision."

He said only 80 to 90 SEZs have become operational and once the figure reached the 100-mark, the Government would carry out a detailed review to find out whether the law has been misused.

The debate saw Opposition members questioning the "reckless" approval of tax-free zones, with BJP alleging that most of the land "was being grabbed by land sharks to set up hotels and malls in the name of SEZs".

On the impact of FDI in retail on small traders, Nath said, "we cannot have anything which rocks the boat of existing employment."

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FIEO panel seeks long-term strategies for agro exports

Mangalore, April 12 The FIEO (Federation of Indian Export Organisations) Committee on Agro Exports and AEZ has stressed on the need for long-term strategies for the growth of agro exports.

Reacting to the annual supplement to the Foreign Trade Policy 2004-09 — which was released by the Union Commerce Minister, Mr Kamal Nath, Mr Walter D’Souza, Convenor of the committee, said that the annual supplement has continued with a few of the short-term measures required to boost agro exports, without addressing the all-important long-term strategies that will lead to India getting its due place among the comity of nations of the world.

Achieving 5% share

If the dream of achieving 5 per cent share in global trade has to be a reality, it is imperative that the Ministry adopts long-term strategies.

“On the agro exports front, it is necessary to arrest the colossal waste of agricultural produce, by addressing infrastructural and logistic issues such as cold chains, railway connections and air cargo complexes with fastest connectivity,” Mr D’Souza said.
Future planning

It is also important to incentivise the packaging of the Indian agro merchandise to raise the bar to international levels.

The policy has not addressed these issues enough. It is time the Ministry looked at the need-based financial allocations on these areas as an investment in the future rather than expenditure for the present, he said.

“We request the Commerce Minister to interact with the agro exporters and chalk out a road map that will give a paradigm shift for the growth of the Indian agro exports,” he said.

The short-term policies include general incentives such as duty entitlement passbook and streamlining of procedures.

The incentive in the form of interest subvention is welcome to tide over the problem in the wake of currency appreciation, he added.

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Indian exports to gain edge over China in the long run, says Nath

New Delhi, April 12 Indian exports will have a competitive edge over China in the long term as the latter addresses the backlash on its currency on account of the huge trade imbalances with other countries, according to the Union Commerce and Industry Minister, Mr Kamal Nath.

“China is under a lot of pressure on their currency. In the long run, I see the Chinese currency appreciating much more. China is conscious that their huge trade imbalances with other countries are having a backlash and that backlash is already coming on their currency.

“With declared inflation of 10.5 per cent and pressure on their currency, their costing will undergo a change. That’s what makes me confident about India achieving $200 billion exports this fiscal,” Mr Nath said at a CII meeting on foreign trade policy here on Saturday.

He said China would have to remove the “artificiality” in the currency and pointed out that India does not have to do any such thing as there was no artificial peg.

“That’s why we will have the competitive edge,” he said.

Stating that the whole objective of the annual supplement to the foreign trade policy was to continue with the economic momentum in the country, Mr Nath said the main challenge for exporters would be that of occupying space in new markets.

He urged industry bodies including CII and FICCI to submit suggestions on the products and countries that could be included in the ‘Focus Product’ and ‘Focus Market’ schemes.

The annual supplement had announced intent to calibrate the Focus Products and Focus Markets schemes so that some products of high export intensity (not covered under the FPS) but which have low penetration in countries (which are not covered under FMS) would be considered for export incentive as a focus product for that country.

A case in point could be garments exports to the Japanese market.

Meanwhile, official sources said that a Cabinet committee is likely to meet here on Tuesday to consider several measures aimed at taming the surge in steel prices.

Indications are that the committee may consider proposal to ban steel exports and reduction in excise duty on steel.

Cement ban not to affect SEZ supplies: The cement export ban will not be applicable for supplies made to special economic zones, the Commerce and Industry Minister, Mr Kamal Nath, has said.

“We will clarify that the ban does not apply for cement supplies to SEZs,” Mr Nath said at a FICCI meeting here on Saturday.

Earlier in the day, Mr Nath said that the notification on cement exports ban was issued on Friday night.

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No plans of giving up on rebating State-level taxes, says Kamal Nath

New Delhi, April 11 The extension of the Duty Entitlement Pass Book (DEPB) scheme up to May 2009 notwithstanding, the Commerce Ministry has not given up on the plans for formulating a scheme that would also rebate State-level taxes, the Commerce and Industry Minister, Mr Kamal Nath, has said.

“No, we are not giving up the idea of rebating State-level taxes. There are certain issues. We are looking at a new scheme. The Finance Commission has also been tasked to look at trade issues,” Mr Nath told in an interview soon after the announcement of the final annual supplement to the Foreign Trade Policy 2004-09 here today.

The exporting community has for years been demanding that the State-level taxes be rebated to help improve their competitiveness in the international market.

On whether units in the software technology parks of India (STPI) would also get one-year extension of Section 10B benefits, beyond 2009, Mr Nath replied in the negative. “It is only for EOU units that this extension would be applicable,” he said.

The income tax exemption available to 100 per cent EOUs under Section 10B of the Income Tax law is to expire on March 31, 2009. The EOUs have got tax exemption for one more year, beyond 2009.

To curb inflation, the annual supplement has also announced the withdrawal of incentives under promotional scheme on export of cement and primary steel items. For primary steel items, Mr Nath highlighted that the incentives under the Focus Market scheme have been withdrawn. The idea is to discourage exports of primary steel and ensure their availability for the engineering sector.

On why cement exports have been banned, a measure done today and not part of the annual supplement announcements, the Minister said that the move would help augment domestic supplies. With the demand for cement expected to increase during April-June, he said that a ban on cement exports would to some extent improve availability and address the demand–supply mismatch.

On whether the Government plans to ban exports of primary steel or do away with customs duty on steel imports, Mr Nath said that more steps are on the anvil to tame inflation. He however ruled out ban on iron ore exports.

“The cabinet committee will consider appropriate measures on a realistic and holistic basis. I think inflation will be controlled. Production has not gone down in any of the items. State Governments have been urged to take steps so that they can fulfill their part and ensure that there is no hoarding or profiteering,” he said.

To a query on the cost to the exchequer for extending interest subvention by one more year, Mr Nath said that it would be Rs 1,050 crore during 2008-09 and would be passed on to the Reserve Bank of India.

On whether the annual supplement has addressed the issue of transaction cost reduction to the best possible extent, Mr Nath said that “large number of procedural issues had been taken care of. I took care of them in the last three years also”.

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Proactive support from Govt key to achieving export target: DGFT

New Delhi, April 11 The annual supplement to the Foreign Trade Policy (FTP) setting out an ambitious 30 per cent export target for the current fiscal in the face of a likely global slowdown would entail not only all the efforts on the part of our exporters but pro-active support from the Government, the Director General of Foreign Trade (DGFT), Mr R.S. Gujral, said today.

In an interview here soon after the policy supplement was unveiled by the Union Commerce & Industry Minister, Mr Kamal Nath, here, the DGFT said that a review of the last year’s export performance reveals that there were specific sectors where there has been a decline in export.

“Significant are those sectors where they are labour-intensive and less import-intensive. Those sectors have obviously been provided additional relief in this policy — whether it is vegetables, fruits or floriculture, additional amounts have been provided.”
Focus market

The Minister also said that Focus Market and Focus Products schemes would be calibrated — some focus markets with 10 of them announced, the incentives would be sought to be calibrated so that some support is provided to the sector which have been hit by the rupee appreciation to seek new markets in these identified countries, he added.

Asked about relief to export segments that had been affected by the rupee appreciation, Mr Gujral said that the average export obligation under Export Promotion Capital Goods (EPCG) scheme would be reduced by the percentage of the reduction in the overall exports if that is beyond 5 per cent. He said there are about 8 to 10 major areas where the exporters would all get the benefits — coffee, cashew, handicrafts, carpets, some silk readymade garments and certain segments of readymade garments such as cotton and plastics where there has been more than 5 per cent decline in exports.
Transaction costs

To a specific query about reduction in transaction cost to trade and industry, the DGFT said that the policy mentions about 25 major measures in this area. In certain areas, specific timeframe is provided where Central Excise/Customs should provide the certification for clearance within 21 days or 30 days. Some additional ports have been notified for the export incentive schemes to reduce transaction cost.
Electronic data interchange

On electronic data interchange (EDI) to bring benefits to exporters reeling under relentless transaction cost, Mr Gujral conceded that the right thing is to have a 100 per EDI interface for all the schemes operated by the Ministry. He said that under DGFT, currently EDI exists only for Duty Entitlement Pass Book (DEPB) scheme.

“There were a lot of glitches in that scheme for a period of 6 to 7 months, those all have been resolved,” he said adding that “we have mentioned in the supplement that two other schemes — Advance Authorization Scheme and EPCG — would be brought under within three months. Obviously all other schemes would take a little longer time. We have not specified a clear target but Focus Product, Focus Market, Vishesh Krishi and Gram Udyog Yojana (VKGY) have been kept in the next phase after we bring in advance authorization an EPCG under EDI mode.”
Procedural simplification

Asked whether he would confidently say that procedural simplification and cumbersome schedules for exporters have been totally done away with, Mr Gujral said, “My response to this is that in normal course, DGFT will not have made any change in procedure/policy in the last 10 months or so I have been there. The tendency is to put changes in the policy. There were close to 50 issues where procedural simplification or resolutions of problems were to be done. I told my officials let us not wait for policy. If exporters face problem, we don’t need to wait for policy and we need to solve them at once. We have done that and the changes announced in the policy today are over and above that”.

He said that the job of the DGFT is to facilitate and to provide an enabling environment and that is what we have done and “I have full confidence in the resilience of our exporters” in compassing the export target set for the current fiscal.

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Export oriented units get extension of I-T benefit

New Delhi, April 11 A slew of measures to pep up export of traditional industries hit by the rupee appreciation, major spurs to cut down transaction costs, procedural simplification, extension of the popular duty neutralisation DEPB (Duty Entitlement Pass Book) scheme till May 2009 and also a one-year extension beyond March 2009 in income-tax benefit to 100 per cent export units are outlined in the annual supplement to Foreign Trade policy.

Releasing the final year supplement to the FTA (2004-09) here on Friday, the Union Commerce and Industry Minister, Mr Kamal Nath, announced an export target of $200 billion for the current fiscal, against $155 billion export performance achieved in 2007-08.

He said the achievement fell short by $5 billion due to the effect of an appreciating rupee by more than 12 per cent against the dollar in 2007. If trade in services were added, India’s commercial engagement with the world would be $525 billion, he said.

In order to achieve the export target, Mr Nath announced tax refunds and interest subsidies to a spate of export segments that are labour-intensive in nature such as marine products, leather, textiles and handicrafts and 5 per cent additional duty credit for export of toys and sports goods.
Agri products

For agricultural products, additional duty credit of 2.5 per cent for export under Vishesk Krishi and Gram Udyog Yojana (VKGUY) is provided for export of certain flowers, vegetables and fruits.

In the Focus Market scheme, 10 more countries including Mongolia, Bosnia-Herzegovina, Albania, Croatia, Honduras, Sudan, Ghana, and Colombia were included.

Under the Industrial Park Scheme, it has now been decided to include IT, ITeS and R&D in natural science and engineering as industrial activities allowed in the parks, he said.

While the customs duty payable under Export Promotion Capital Goods (EPCG) Scheme has been cut from 5 per cent to 3 per cent, average export obligation under the scheme for premier trading houses would be calculated based on the average of the last 5 years’ export instead of the extant 3 years. Alongside, reduced average export obligation under EPCG for sectors that have seen decline in exports in the previous year is also announced.

Mr Nath also unveiled a plan , for value-added manufactured products and said the list of products would be notified shortly. The government would also set up an export promotion council for the telecom sector to augment its exports and would also set up hubs for auto parts, drugs, and petroleum and information technology.
Trade outlook

The Minister also declared that the country hoped to take a five per cent share of global trade by 2020, a four-fold spurt in the next 12 years and a growth rate of 25 per cent consistently in the years ahead.

Other measures announced include treating of all electronic data interchange (EDI) ports as single port, reduction in application fee for duty credit scrips and EPCG authorisation, reduction of application fee for importer and exporter code and a joint task force to plan an integrated trade strategy to address structural problems of exporters.

EOUs would be allowed to pay excise duty on a monthly basis instead of consignment basis. To ensure that terminal excise duty and central sales tax refund is made on time, interest at 6 per cent a year is to be paid to the exporter where refund is not made within one month of the due date.

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Ministry keen on cost reduction to trade, not seeking sops

New Delhi, April 11; The Commerce Ministry is not seeking sops for exporters but only insisting on reduction of cost to trade and industry that operate in a high-cost economy with a multitude of problems - from high power cost to inadequate infrastructure facilities - that obstruct the flow of goods across the country and out of it.

In an interview on the annual trade policy supplement, the Commerce Secretary, Mr Gopal K. Pillai, said while the port capacity is increasing by 10 to 12 per cent in a year, exports are going up by 20 to 25 per cent and import growth is accelerating. The resultant congestion and other constraints are forcing people to make changes. Suddenly, container terminals are coming up in three months and minor ports are coming up in Andhra Pradesh, Mundra and Pipava, he said adding that some of these ports are handling 50 million tonnes, when five years ago it was zero. He said that on the western coast, minor ports would take up a lot of slack and major ports will still have problems in augmenting capacity.

Mr Pillai said transaction cost is also reflected by State levies which are not reimbursed now. He said that "after a lot of struggle, we managed to get 19 notifications of exemption from services tax. There is still one or two problems, we hope to solve it shortly".

He said the extension of the Duty Entitlement Pass Book Scheme (DEPB) till May 2009, extension of interest subvention at 7 per cent for traditional items hit by rupee appreciation and the enhanced DEPB rate applicable to them would help small and medium exporters in a big way. The provision of Rs 1,500 crore for interest subvention for the traditional sector and another Rs 1,000 crore for sports goods, toys and handicrafts would bring additional benefits to exporters.

Food security

When asked if frequent changes in export-import policy, such as putting a ban of export of rice, would affect the promised stability of the policy, Mr Pillai said " when it comes to the issue of food security, the Government cannot take the risk of not ensuring domestic availability. Each year, four million tonnes of non-basmati rice are exported. But when it went to five million tonnes last fiscal, the alarm bell rang and a ban on this type of rice was imposed as an advance action to avert domestic supply shortfall".

To a query on grabbing a five per cent share in global trade by 2020 as laid out in the policy today, Mr Pillai said that "structural weaknesses of the traditional industries, which are labour-intensive, need to be addressed and that is why the policy lays so much stress on extending relief measures to these units."

He said that it would be difficult to have a five per cent share in global trade if the manufacturing growth of 10 to 12 per cent per annum is not achieved.

He, however, hastened to add that with the sort of hubs like petrochemicals and special economic zones that dot the industrial map of the country at present, there is hope on the manufacturing front. This would be complemented and supplemented by policy support from all the Ministries in a holistic and integrated fashion, Mr Pillai added.

On the export target fulfilment of $200 billion for the current fiscal, Mr Pillai said that "it is on the high side but it is still possible. I think if the rupee appreciation does not take place drastically but gradually, the exporters would be able to absorb the effect" to ensure the target realisation with the kind of supportive policy the Government has laid out on a continuous basis.

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Kolkata, April 11 Describing the recent Service Tax Refund Notification on Foreign Commission Agents (FCAs) issued by the Finance Ministry as “bureaucratese at its worst”, Mr Rakesh Shah, Chairman of Engineering Export Promotion Council (EEPC), said here that it goes not only against the RBI guidelines but also against the Department’s own notification issued in 2002.

Talking to Business Line, Mr Shah said the April 1, 2008 Notification has allowed refund on the service tax paid to foreign commission agents to the extent of only 2 per cent of the f.o.b. value of exports, “when the RBI guidelines allow FCAs to be paid up to 12.5 per cent of f.o.b. value of exports”.

He said the Department of Revenue by its own circular issued in 2002 had clarified that for those exporters availing of export benefits, the foreign agency commission would be 12.5 per cent.

He said it was surprising that the April 1, 2008 Notification has set a limit of only 2 per cent of f.o.b. value of exports for foreign commission agent’s payment to be refundable.

“The 2 per cent f.o.b. limit is hardly acceptable in these times and will not in any way benefit exporters.”

Pointing out that the principal notification with regard to the 16 services that come under the purview of service tax refund was issued on October 6, 2007, Mr Shah observed that this notification had a further restrictive provision which states that the refund claim has to be filed on a quarterly basis, within 60 days from the end of the relevant quarter during which the said goods have been exported.

He said most exporters pay commission to their respective foreign agents only after realisation of export proceeds. The period allowed for export proceeds realisation by RBI is 180 days for exporters and 360 days for status holders. According to him, if exporters have to claim service tax refund within a period of 90 days as ordained by the October 7, 2007 Notification, it would further add to the fund squeeze that small and medium exporters were now facing, confronted by the rupee appreciation and sharp increase in raw material prices.

Mr Shah said he has already represented the above anomalies to the Finance Minister and Commerce Minister, requesting that the service tax refund limit on foreign commission agents be increased to 12.5 per cent of f.o.b. value from the allowed 2 per cent.

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Kamal Nath unveils annual supplement to Foreign Trade Policy

NEW DELHI: 11 April; Union Commerce and Industry Minister Kamal Nath on Friday announced various measures to check spiralling inflation, extended sops to exporters to sustain growth in the export sector and gave relief to sectors hit by rupee appreciation vis-a-vis dollar in the current fiscal.

Releasing the annual supplement of the Foreign Trade Policy (FTP) here on Friday, Mr. Kamal Nath said: “To curb inflation on essential items, the Government has banned export of non-basmati rice, edible oils and pulses. Now we are banning export of cement too, while tax incentives and the promotional scheme on export of rice and primary steel items are being withdrawn.”

DEPB scheme

Lauding exporters for their resilience and hard work in sustaining the growth momentum, Mr. Kamal Nath announced a slew of ‘innovative steps’ that included extension of the ‘Duty Entitlement Passbook’ (DEPB) scheme till May 2009; extension of the interest subvention scheme where exporters are given bank credit at a reduced rate of 6 per cent; reduction of customs duty payable under the ‘Export Promotion Capital Goods’ (EPCG) scheme from 5 per cent to 3 per cent; and lowering of average export obligation under the EPCG scheme. “The Interest subvention scheme would mean an outgo of Rs. 1,050 crore from the Central Exchequer in the current year,” he added.

IT exemption for EOUs

The Minister also extended income-tax exemption to 100 per cent export oriented units (EOUs) beyond 2009, announced additional duty-free credit of 2.5 per cent under the ‘Vishesh Krishi Gram Upaaj Yojana (VKGUY) to boost exports of fruits, vegetables and flowers besides giving 6 per cent interest annually to exporters if refunds are not made within one month of the due date. However, the Software Technology Parks of India (STPI) scheme, which also faces uncertainty over continuation of the tax benefits, will not get advantages of EOUs.

Similarly, Mr. Kamal Nath announced additional credit of 5 per cent for sports and goods industries under the ‘focus product scheme’; special focus initiative for the information technology (IT) sector; inclusion of IT and IT-enabled services and research and design in natural sciences under the ‘industrial park scheme’; and establishment of ‘Export Promotion Council’ (EPC) for telecom; and extension of re-import of branded jewellery to one year.

Stating that the Indian telecom sector has seen a dramatic growth, Mr. Kamal Nath said the telecom EPC would be set up in partnership with the private sector to boost exports. Exports from the telecom sector were likely to more than double to Rs. 4,000 crore this year from Rs. 1,800 crore in 2007-08, he added.

Under the focus market and product schemes, Mr. Kamal Nath said the coverage had been increased and ten more countries — Mongolia, Bosnia-Herzegovina, Albania, Macedonia, Croatia, Honduras, Djibouti, Sudan, Ghana and Colombia — were being included.

Mr. Kamal Nath said the FTP initiatives in the last four years had resulted in increased trade activity and had generated additional employment of 136 lakh. “Exports are not just about earning foreign exchange, but about boosting the manufacturing sector, creating large-scale economic activities and generating employment opportunities. India’s total merchandise trade (both exports and imports) will be $400 billion during 2007-08, accounting for nearly 1.5 per cent of world trade. If trade in services is added, our commercial engagement with the world would be to the tune of $525 billion,” he added.

The Minister pointed out that the new FTP (2004-09) had more than doubled India’s exports in the last four years. The country’s exports in 2007-08 had exceeded $155 billion from $63 billion in 2004, registering a cumulative annual growth rate (CAGR) of 23 per cent, year-on-year, and way ahead of the average growth rate of international trade.

“And this we have achieved despite appreciation of the rupee, high interest rates, spiralling oil prices, slowdown in major trade markets, and withdrawal of some GSP (generalised system of preferences) benefits to India by other countries,” he said, adding that “India should achieve 5 per cent share of world trade by 2020. As a means to achieve this, an export target of $200 billion has been set for 2008-09.” Noting that there are still many structural problems to be addressed, Mr. Kamal Nath announced setting up of a ‘joint task force’ (JTF) to plan an integrated strategy to tackle these issues. The task force would look at development of world-class infrastructure to facilitate trade, involving an investment of over $800 billion; find measures to ensure trade facilitation; look into development of global manufacturing hubs in selected sectors including auto-components, gems and jewellery, textiles and petro-products.

Talking about ‘special economic zones’ (SEZs), Mr. Kamal Nath said: “the Government views it as vehicles of industrialisation and employment generation. SEZs currently provide employment to more than 2.8 lakh people and the projected exports from SEZs would reach Rs.1.25-lakh crore by this year.”

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