New
Delhi: The Indian government had announced its modified
Export Import (Exim) Policy for the year 2003-04 with
much aplomb and fanfare. Well, the Exim Policy for the
years 2002 to 2007 was already announced last year and
is still in place.
But keeping in
view the heartening growth of exports during the last
12 months, the government thought of bringing in some
changes in the policy that would lend stability to the
policy and maintain the momentum of healthy export growth.
International trade
fundamentally arises out of what is known as comparative
trade advantages. To understand this principle, let us
go back to the time around the India's Independence. During
those days, the products in which India had a comparative
advantage were jute products.
A country like
France, on the other hand, was strong in manufacturing
wines. Apart from wine, France was also in need of jute
products for its industrial activities. Given the ground
realities, it made sense that instead of manufacturing
jute products in France, France would be better off manufacturing
wines and import its jute requirements from India. Likewise,
India too would be better off manufacturing jute products
and import its wine requirements from France.
Rational thinking
This is how foreign or world trade is driven, and this
year's Exim Policy addresses this aspect by recognising
services, textiles, auto, gems and jewellery and agricultural
exports as the engines of growth during the next four
years. The Exim Policy has identified areas in which we
have competitive advantage and also deleted from its thrust
focus items in which we no longer hold a competitive advantage.
As of now, India's
share of the global trade is hold your breath
0.67 per cent and the target is that by the year 2007
this share of the global trade will rise to hold
your breath again 1 per cent. A pragmatic and achievable
target, one should say.
The Exim Policy
focuses on exports of services, exporters' duty-free import
of consumables, office and personal equipment, spares
and furniture up to 10 per cent of the average export
earnings in foreign exchange in the previous three years.
By and large a symbolic gesture, but it has been welcomed
by the services sector, specially the tourism sector.
For agricultural
exports, the government has permitted private participation
in agricultural export processing zones (AEZ). Companies
investing in AEZs have been promised income tax benefits.
The details of the benefits package has not been announced
but it is likely that income tax concessions on a percentage
of the income projected from investment in AEZs will be
granted.
An export processing
zone is essentially a demarcated area or a cluster where
exporters operating in this area are given special concessions
and facilities like offshore banking units, which enable
the exporters to bring down their transaction costs and
make them work in a hassle-free environment.
This is a concept
that has worked successfully in China and other countries,
and today about 25 per cent of a country's export trade
come from their special export processing zones. It is
also worth mentioning that in China nearly 40 per cent
of the country's export comes from these special export
processing zones.
Tackling issues
India has tried to replicate this model and had announced
special zones and clusters in areas like Indore, Kochi,
Tirupur, Panipat and Ludhiana. These zones have not taken
off as intended and the prime reason why such clusters
have not taken off is due to land acquisition problems.
But we have it from the mandarins in the commerce ministry
that all is well and these zones would be functioning
fully in the current year.
The government
is, along with the fiscal sops, offering infrastructure
support to these units. The department of industrial policy
and promotion has finalised a scheme, which aims to give
common infrastructure backup to small- and medium-sized
units in these clusters so that these clusters function
as a large single unit.
International trade
is just not about exports. Imports are also crucial. As
we export, we develop foreign exchange reserves and these
reserves are meant for import of items that the country
does not manufacture but needs none the less. Today, India
is sitting on a huge cache of foreign exchange reserves,
nearly $80 billion and which is increasing by the month.
Such a huge reserve
is actually an embarrassment of riches and recognising
the need to spend these reserves, the government has,
during the course of last year, eased many of the stipulations
laid down for acquiring foreign exchange, both for individuals
as well as businesses.
This Exim Policy
has made the import of second-hand capital goods, which
are the main vehicles of investment in this country, easier.
The government has also announced duty concessions that
will make the cost of import of capital goods cheaper.
For importing capital
goods the manufacturer had to earlier undertake an export
obligation, meaning that the manufacturer will export
a certain percentage of his product to make good the amount
of foreign exchange spent while importing. Relaxations
have now been considered in such export obligations, which
will make the manufacturer breathe easier.
The above packages
are at the end targeted to ensure that that the country's
share of the global trade grows at the rate of 12 per
cent per annum and take our share from the present 0.67
per cent to 1 per cent by the year 2007.
Not
a difficult target, considering last some years' export
growth and keeping in mind the fact that during Independence,
India's share of the global trade was 2.5 per cent, nearly
four times more than what it is today.
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