Last fiscal, exports nudged $122bn, $3bn lower than targeted. The rupee is to blame partly for this, Union minister of commerce and industry, Kamal Nath, said.
Ajoy K Das & Nivedita Mookerji
KOLKATA/NEW DELHI: The government on Wednesday announced the abolition of service tax on all exports, extended duty sops to special economic zones and included more farm items for incentives, extending the rural tilt first seen in the Union Budget.
It has set for itself an export target of $160 billion in this financial year, 28% more than last, banking on special economic zones to deliver the goods.
Last fiscal, exports nudged $122 billion, $3 billion lower than targeted. The rupee is to blame partly for this, Union minister of commerce and industry, Kamal Nath, said.
Other worries loom, too, such as a US slowdown and weakening dollar.
Rakesh Shah, chairman, Engineering Export Promotion Council (EEPC) said the $160 billion target would have been achievable provided trading conditions that existed till February 2006 continued.
“The rupee appreciation translates into roughly 9% disability in terms of pricing, which significantly erodes margins. Also, there is no move to bring down the cost of export credit,” Shah said.
In setting the target, the ministry has factored in a 35% growth in engineering exports. “But with steel prices showing a persistent northward journey, there is little chance of this. So the overall target doesn’t seem achievable,” Shah said.
Ganesh Kumar Gupta, president, Federation of Indian Export Organisation (FIEO) concurs.
His advice? "The minister has to back up policy with dialogues with the finance ministry and the Reserve Bank of India (on the rupee and cost of export credit) to achieve targets."
The foreign trade policy also fails to recognise that 25% compounded annual growth was achieved with rupee-denominated export credit averaging 6%. In the past few months, such credit is costing 9.75%.
The policy is also silent on de-linking rupee denominated export credit from the prime lending rate (PLR) and instead pegs it to the bank rate of 6%. That's the interest rate commercial banks get for parking funds with the RBI.
EEPC and FIEO have been petitioning the ministry for delinking since the past two years.
"The 20% annual exports growth goal could have been realistic had the rupee not gained so much," said P K Shah, past president, FIEO.
Meantime, Nath said foreign trade policy must become a vehicle for faster development of rural areas and agriculture, thus striking a balance between the United Progressive Alliance's (UPA) common minimum programme (CMP) and the needs of the industry.
Keeping in mind the CMP, Nath announced some incentive schemes for agricultural exports.
Mentioning that 60% of the population depended on agriculture for their livelihood, he said, "Vishesh Krishi and Gram Udyog Yojana would be expanded to include coconut oil, soyabean oil, potato flakes, meals and flours, cardamom, food preparations like soups, sauces, pasta and bakery products etc."
A scheme to incentivise agro-processing was also announced.
In addition, this year's trade policy is focused on handloom and handicraft industries. "The new initiative will provide for tools, machinery and equipment for handicrafts, within the present duty-free entitlement ceiling.
his will allow rural-based activities to modernise and scale up operations to meet market challenges," the minister said.
Besides, duty exemption for equipment in effluent treatment plants in handloom and handicraft industries, the government has also increased the export obligation period under the EPCG scheme for the cottage and tiny industrial sectors from 8-12 years.
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