The Hindu Business Line : Priority status likely for exports

THE New Foreign Trade Policy (NFTP) in place of the Export-Import (Exim) Policy, to be unveiled on August 31, would broadly lay out "a fundamental framework" of how the country's foreign trade would evolve in the next five years.

Exports are likely to get national priority status for seamless operation without the hassles to which it was exposed earlier.

Sources in the Government told Business Line that unlike in the past, when the Ministry of Commerce and Industry used to come out with policy modifications every year even after a five-year policy framework was put in place, the NFTP would do away with any such annual announcement in a ritualistic fashion.

NFTP is likely to unfurl a strategy to double exports of both goods and services to over $150 billion per year in order to garner a two per cent share in global exports by spearheading the development and reinforcement of special economic zones (SEZs) for export expansion, manufacturing and employment with specific thrust on agriculture exports, clinical research and health care, handloom and handicrafts, gem and jewellery, textiles and leather products which are labour-intensive by nature.

The major plank of the policy framework is to march towards a phase where all export activities are rid of debilitating tax burdens in order to ensure that no domestic tax is exported, the sources said.

When contacted about the feasibility of such an ideal situation for exporters, Dr Montek Singh Ahluwalia, Deputy Chairman, Planning Commission, said that the principle that taxes should not be exported is internationally accepted.

"The correct thing to do is to have relatively low rates of taxes. You don't do exemptions ex-ante. You allow them to claim rebate subsequently. There should be no cascading of taxes so that the domestic indirect taxes are essentially zero-rated. If you can achieve this, then you will have achieved a world class tax system."

While the compulsions of the revenue department would not let the Finance Ministry usher in a tax-free regime for exporters, the NFTP would at least make a modest move in this direction particularly in the wake of the recent Kelkar Task Force report, which plumped for ending all distortionary tax exemptions.

The sources said that as transaction cost accounts for a considerable draft on the exporters, varying between four per cent to 13 per cent from State to State, the NFTP would make a concerted bid to deal with such costs as bank guarantee, delay in Customs, documentation, ports and power supply fluctuations.

Where setting right physical infrastructure like delay in ports, airports and constraints in road transport would entail considerable outlays, the authorities would try to dispense with avoidable paperwork and blocking of much-needed working capital in the form of filing up of the FIR for lost import-export code (IEC) to exporters and furnishing bank guarantee to start with, the sources said.

As lack of or inadequate co-ordination between various Ministries involved in export facilitation or attending to specific problems affect exporters adversely, the NFTP would work on rejuvenating the multi-member Board of Trade, which has not been meeting for some years.The objective is to replace it with a cohesive group of key economic Ministers involved in foreign trade so that it acts as a trouble-shooter for trade and industry. As the import policy for capital goods has been hamstrung by restrictions preventing SMEs from importing capital goods or machinery for technological upgradation and improvement in productivity, the NFTP would go in for providing duty-free import of capital goods with flexible provisos applicable for such machinery as regards the life-span rider, the sources said.

The logic is that if India could sign the WTO's IT Agreement to provide for duty-free import of IT equipment, the manufacturing sector should also be gradually provided a level playing field to get the best of technologyto enable it to emerge as the hub for manufacturing export over the long haul, the sources said.

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