Export Growth: Let's Hope!!

Reformed SEZ policy might not bring desired results in medium term due to infrastructure hurdles and bureaucratic bottlenecks for business set-up. 

Considering the declining rate of exports and subsequent rising trade deficit, the Annual Supplement to the Foreign Trade Policy primarily aims at putting exports on a growth trajectory. Not left with many options to do that, Commerce Ministry has specifically tried to rejuvenate investment in Special Economic Zone (SEZ) through amending existing policies. In addition, extension of interest subsidy to engineering exports, simplifying the transaction rules for exports and expansion of Export Promotion Capital Goods (EPCG) scheme are few other provisions of Foreign Trade Policy (FTP) for current fiscal year 2013-14. However, it doesn’t speak about what measures are to be taken to control nation’s increased dependence on imports.

As per new SEZ framework, minimum land area requirement for multi-product SEZs will be 500 hectares as against 1000 hectares and for sector-specific SEZs 50 hectares as against 100 hectares. In a bid to boost small and medium size enterprises, Govt. has done away with mandatory requirement of minimum 10 acre of land area for setting up a business. Now, small office buildings can also avail SEZ benefits as minimum land requirement for 7 major cities is 100,000 sq. m, 50,000 square meters for Category B cities and only 25,000 square meters for the remaining cities. Also, exit policy has been introduced for existing units based in SEZ who can now transfer or sale ownership of their SEZ area. To some extent these moves will help revive investor interest but SEZ developers and units are disappointed that the Government has not exempted them from Minimum Alternate Tax (MAT) and Dividend Distribution Tax (DDT) which primarily drove away investments from SEZ. They also contend that SEZ units must have been made eligible for focus product and focus market schemes.

FTP has done away with 3% duty Export Promotion Capital Goods scheme and harmonized it with zero duty EPCG scheme. Sectors under Technology Upgradation Fund Scheme (TUFS) can also avail benefits of zero duty EPCG scheme which entails zero import duty on capital goods meant for production. This scheme has been extended beyond March 2013. The only glitch is that authorization holders will have export obligation of 6 times the duty saved amount to be completed in a period of 6 years. The interest subvention scheme, by which interest on loans to exporters is reduced by 2% has been extended by March 2014 and also has been widened to include 134 sub-sectors of engineering and textile sectors. These steps will help improve export performance of textile manufactures and garment exporters.

According to recent data, export from India has declined by 1.76% to $300.6 billion while imports rose 0.4 per cent to $491.5 billion pushing up the trade deficit to $190.91 billion. Commerce Minister Anand Sharma has tried to deliver best possible provisions via Annual Supplement of FTP to facilitate exports in the backdrop of global economic slowdown and policy restraints at home but one must not expect a quick export jump in the wake of this policy as export promotion is a long term initiative. Even the reformed SEZ policy might not bring desired results in medium term due to infrastructure hurdles and bureaucratic bottlenecks for business set-up.