New FTP sets $ 200 billion export target

NEW DELHI: Exporters, especially those from labour-intensive sectors such as textiles, gems & jewellery, marine, handloom and leather, have

been handed yet another basket of incentives to increase their competitiveness in the shrinking world market.

The foreign trade policy (FTP), announced by commerce and industry minister Anand Sharma on Thursday, seeks to help exporters establish a stronger foothold in existing markets, make inroads into new markets, upgrade technology through cheaper imports of capital goods, and reduce transaction costs and time through e-filing and lowering of application fees.

The policy—which has set a export target of $200 billion for 2010-11 and talks about doubling exports by 2014—also attempted to build a more stable policy environment by extending a number of existing schemes, including the popular import duty reimbursement (DEPB) scheme and enhanced export credit guarantee cover (ECGC), till the end of the fiscal and beyond.

The incentive package, which follows a number of sops already given in the Union Budget announced earlier this year, however, did not manage to please all. While some exporters contacted by ET welcomed the sops, others felt that the incentives were too little and limited to help make much of a difference on the global front.

“Given the limited incentives provided in the package, it will be very difficult to meet the existing export target of $168 billion. The government should have given more support,” said Rakesh Shah from the engineering export promotion council (EEPC).

Delhi Exporters Association president SP Agarwal said the policy does not live up to exporters’ expectations and will not contribute to stemming the fall in exports. “We have been told time and again that exporters will not have to export taxes. However, nothing was announced in this policy to address issues such as reimbursement of input taxes charged by states and also refund of VAT,” Mr Agarwal said.

Fieo, the umbrella body representing a number of export organisations was, however, more appreciative. “The new policy rightly puts emphasis on market diversification as our traditional exports have been hit badly due to concentration in the US and EU regions. The introduction of zero-duty capital goods scheme will add to expansion and modernisation of the production base,“ Fieo president A Sakthivel said.

Falling in step with competing countries like China, Bangladesh and Pakistan that have recently increased export incentives, the FTP provides higher support for market and product diversification by increasing incentives under focus market and focus product schemes—two independent schemes giving direct incentives to export of select products and to select countries.

The focus market scheme has been extended to 26 new markets, which includes 16 in Latin America and 10 in Asia-Oceania. The government also introduced a new market-linked focus product scheme where incentives will be given to export of select items to 13 identified markets like Egypt, Kenya, Nigeria, South Africa, Tanzania, Australia and New Zealand.

The policy also sought to ensure that dollar credit needs of exporters are met in a timely manner by setting up a committee, including finance secretary, commerce secretary and the Indian Banks Association (IBA) to monitor credit flow.

To help the industry upgrade technology, the policy introduced a scheme for importing capital goods at zero duty for identified sectors like engineering, chemicals, electronic products, pharmaceuticals, textiles, handicrafts, plastics and leather and leather products, subject to an obligation to carry out specified amount of exports. The existing export promotion capital goods (EPCG) scheme allows import of machinery at 3% duty against an export obligation.

Status holding exporters—whose exports are over and above specified levels—will be allowed additional duty credit scrips for import of capital goods for personal use at lower import duties. The discount will be equivalent to 1% of the exports made in the previous year.

The government has also announced continuation of the DEPB scheme beyond December 31, 2009, to December 31, 2010, and the enhanced ECGC cover till March 2010. The extension will help exporters in taking pricing decisions over an extended period of time.

A number of specific sops have been extended to labour-intensive industries such as gems & jewellery, marine, leather and the handloom sectors, which have received the most severe battering due to the global economic crisis.

The FTP has also sought to reduce transaction costs (which account for 5%-7% of total value of exports) and time by introducing a time frame for complete electronic networking of various export related agencies and reducing fees for authorisations and licence applications.