The long awaited Foreign Trade Policy for 2009-14 has been announced, but perhaps even more important than the Policy itself was the speech delivered by the Minister of Commerce, Anand Sharma. Setting the tone and tenor of what was coming up was abundantly clear in his opening remarks, when he said, "this (policy) comes at a challenging time as the entire world is facing an unprecedented economic slowdown. This year we are witnessing one of the most severe global recessions in the post-war period...WTO estimates project a grim forecast that global trade this year is likely to decline by 9% in volume terms, while the IMF has projected a decline of over 11%" The speech goes on to add, "The World Bank estimate suggests that 53 million more people would fall into the poverty net this year and over a billion people would go chronically hungry."


Having given the backdrop, the Minister acknowledged "Fortunately India has not been affected to the same extent as other economies of the world, but our exports have suffered a decline in the last 10 month due to contraction in demand in the traditional export markets, with some countries resorting to protectionist measures, which are posing barrier to fee trade, which has aggravated the problem." Then he concludes, "I remain hesitant to hazard a guess on the nature and extent of this recovery and whether it is a V shape recovery or U shape recovery."


Only if we read all this in context of what he had said two days earlier than the Policy announcement, when he categorically stated, "That for labour-intensive industry exports, especially agriculture, textiles, leather, gems and jewellery, I would like to make a specific announcement or the special dispensation which would underline the sensitivity of the Government towards issues of employment."


So far, so good.


But does the Foreign Trade Policy announcement that he has made, measure upto "the sensitivity of the Government" it professes. To my point, perhaps more no than yes.


First, what are the more important highlights of Policy:


Market and Production Diversification


  1. 26 new markets have been added under Focus Market Scheme, which include 16 new markets in Latin America and 10 in Asia-Oceania.
  2. Incentives available under Focus Market Scheme (FMS) has been raised from 2.5% to 3%.
  3. Incentives available under Focus Product Scheme (FPS) has been raised from 1.25% to 2%.
  4. Market Linked Focus Product Scheme (MLFPS) has been greatly expanded by inclusion of products classified under as many as 153 ITC (HS) Codes at 4 digit level, including synthetic textile fabrics, textile made-ups, knitted and crocheted fabrics. Benefits to these products will be provided, if exports are made to 13 identified markets (Algeria, Egypt, Kenya , Nigeria, South Africa, Tanzania, Brazil, Mexico, Ukraine, Vietnam, Cambodia, Australia and New Zealand).


Technological Upgradation


EPCG Scheme at Zero Duty has been introduced. This Scheme will be available for certain specified sectors including apparel and textiles (subject to exclusions of current beneficiaries under Technological Upgradation Fund Scheme (TUFS) and beneficiaries of Status Holder Incentive Scheme in that particular year. The Scheme will be in operation till 31 March 2011.


EPCG Scheme


  1. Export obligation on import of spares, moulds etc. under EPCG Scheme has been reduced to 50% of the normal specific export obligation.
  2. Taking into account the decline in exports, the facility of re-fixation of Annual Average Export Obligation for a particular financial year, in which there is decline in exports from the country, has been extended to the 5 year Policy period 2009-14.


Status Holders


To accelerate exports and encourage technological upgradation, additional Duty Credit Scrips shall be given to Status Holders @ 1% of the FOB value of past exports. This facility will be available up to 31 March 2011.


 

DEPB/ECGC Cover


  1. Duty Entitlement Pass Book (DEPB) has been extended beyond 31st December 2009 till 31st December 2010.
  2. DEPB rate will also include factoring of Customs Duty component on fuel where fuel is allowed as a consumable in Standard Input-Output Norms.
  3. The adjustment assistance scheme initiated in December, 2008 to provide enhanced ECGC cover at 95% to the adversely affected sectors, is continued till March 2010.


EOUs


EOUs have been allowed to sell products manufactured by them in DTA up to a limit of 90% instead of existing 75% without changing the criteria of similar goods, within the overall entitlement of 50% for DTA sale. EOUs will now be allowed to procure finished goods for consolidation along with their manufactured goods, subject to certain safeguards. During the period of downturn, Board of Approvals (BOA) to consider extension of block period by one year for calculation of Net Foreign Exchange earning of EOUs. EOUs will now be allowed CENVAT credit facility for the component of SAD and Education Cess on DTA sales.


Value Added Manufacturing


In order to encourage Value Added Manufactured export, a minimum 15% of value addition on imported inputs under Advance Authorization Scheme has now been prescribed.


Waivers


Waiver of Incentives Recovery, on RBI specific Write off allowed. In cases, where RBI specifically writes off the export proceeds realization, the incentives under the FTP shall now not be recovered from the exporters subject to certain conditions.


Now let the industry speak for itself on the Foreign Trade Policy:


R.K. Dalmia, Chairman, Confederation of Indian Textile Industry (CITI), said that the Foreign Trade Policy for 2009-14 is "highly disappointing for the textile and clothing industry". He said that during the run-up to the announcement of Policy, there have been several statements to the effect that the labour intensive sectors such as textile and clothing will be the focus of the policy. Even in the speech of the Minister while launching the Policy, there are references to "Sectors which have been hit hard by recession in development world" and "Special thrust to employment-oriented sectors, which have witnessed job loses in the sake of recession especially in the field of textiles, leather, handicrafts etc." However is nothing in the policy for implementing these objectives. He stated that 17 technical textile products have been included in the Focus Product Scheme. Since many of them are at 4-digit level, a substantial number of products will be covered by these and this is a welcome feature of the Policy. He, however, ass adding some countries in the Market Linked Focus Product Scheme could have provided some relief to this sector.


Rakesh Vaid, Chairman, Apparel Export Promotion Council (AEPC) felt that Foreign Trade Policy for 2009-14 has measures which are much short of those required to boost exports in the current global economic scenario. He said "Duty-free scrips, which are currently worth 2% of export values for the US and the EU, should be have be increased to 5%. Nor has the Scheme been extended beyond September. This will cripple our export performance as over 70 per cent of Indian exports are to the European Union and the US." He added that "Zero duty Export Promotion Capital Goods Scheme for textile and apparel will not benefit small and medium exporters as it excludes current beneficiaries under the Technological Upgradation Fund Scheme and beneficiaries of the Status Holder Incentive Scheme in that particular year." The addition of 26 new markets under Focus Market Scheme as announced in the Policy may yield marginal results in the short run, he said.


Speaking about the increased cash assistance available under Focus Market Scheme from 2.5% to 3% and raising of incentives available under the Focus Product Scheme from 1.25% to 2% and expansion of Market Linked Focus Product Scheme for synthetic textile fabrics, textile made-ups, knitted and crocheted fabrics, if exports are made to 13 identified markets like Algeria, Egypt, Kenya, Nigeria, South Africa, Tanzania, Brazil, Medico, Ukraine, Vietnam, Cambodia, Australia and New Zealand, Vaid said, "These measures do not compensate for a comprehensive and competitiveness enhancement strategy in the form of a stimulus package as Indian goods are over 20 per cent costlier than those supplied by some competing countries like China, Bangladesh, Vietnam and Cambodia."

 

A. Sakthivel, President, Tirupur Exporters Association (TEA) has welcomed providing additional Duty Credit Scrip at 1% of the FOB value of exports being made in 2009-10 and 2010-2011 to Status Holders. He said the introduction of Zero Duty EPCG Scheme and reduction of export obligation equivalent to 6 times of duty saved on capital goods imported under Zero Duty EPCG Scheme are laudable measures. He also appreciated the announcement of the reduction of export obligation to 50% of the normal specific export obligation on import of spares apart from increase in incentives available under focus Market Scheme from 2.5% to 3% and the focus Product Scheme from 1.25% t o 2%. He is equally happy with the announcement ensuring the Dollar credit needs of exporters in a timely manner which will be of great help to the exporting community. He, however, found the announcement of extension of MLFPS scheme beyond 20 September 2009 missing and urged the Minister to extend the scheme for 3 more years, as the markets for apparel products in the US and the EU have not yet picked up.


G.S. Madan, President, Garment Exporters Association (GEA) termed the Foreign Trade Policy, "A good policy theoretically but lacking a certain practicability as far as the apparel export trade from the country is concerned." He said, "The policy earlier had granted 2% market linked duty credit scrip, which is now slated to be withdrawn from 30 September 2009. This definitely is not the right time to withdraw the support because as it, we are being out-priced by other countries in supply of garments and in the absence of any support, we would tend to lose out on customers we may have painstakingly established over many decades. In view of this, the duty credit scrip for the US and the EU must be continued for another year and then reviewed."


Madan noted that the addition of new countries in the Market Linked Development Scheme is a welcome measure as a long-term policy, but for the apparel trade to establish itself in these countries would take quite sometime, considering their demographics, purchasing power and our apparel export product profile, which at present is not in tandem with their present requirements.


Satish Bagrodia, President, PHD Chamber, while welcoming the features like increase in support under the Focus Market Scheme and Focus Product Scheme and inclusion of newer markets and products, expressed his disappointment that no major steps have been taken to address the slowdown in exports and provide a fillip to exports. He felt it was necessary to address issues such as timely export credit at internationally competitive rates, providing inputs at international prices; safeguard to exporters against dollar fluctuations etc. should have been taken care of. He added, "Continuity of other schemes i.e. DEPB scheme, income tax benefits for IT and 100% EOUs, interest subvention are also welcome steps. Bagrodia welcomed the decision to set up a Directorate of Trade Remedy Mea sures to provide support to Indian industry and exports, especially the MSMEs in availing of their rights through trade remedy instruments and he was looking forward to an early announcement of the terms of reference of this proposed Directorate.


Sajjan Jindal, President, Assocham has described foreign Trade Policy as user-friendly since it rightly focuses on creation of demand for Indian products in new 26 markets to help exporters diversify their risks. He said, Commerce Minister has realistically set up export target of $200 billion for 2010-11. He appreciated the enhancement in export incentives especially raising them from 2.5% to 3% under focus Market Scheme as also from 1.25% to 2% under focus Product Scheme. These are extremely significant steps for which Commerce and Industry Minister needs to be complimented. He said another bold step taken by the Government includes extension of re-fixation of Annual Average Export Obligation for a period of another 5 years. Likewise, extension of the DEPB and interest subvention of 2% pre-shipment credit for 7 specified sectors have also been extended, which is most welcome.


What do we Say?


In our July, 2009 issue of The Stitch Times, I had already given an inkling as to what is forthcoming and even more importantly why? Though I had quoted Anand Sharma, Commerce Minister as saying We are already looking at a special package for exporters, the manufacturing sector and labour-intensive sectors. By giving incentives, we will make Indian exporters globally more competitive. We will be taking up these issues with the Finance Ministry (Page 26), I had written, Let me state that I personally do not believe that anything substantial in terms of fiscal measures would be forthcoming for garment export sector. I have a reason a sound one. The financial health of the Government revenues is far from satisfactory.. (Page 27). On the same page, I had made a statement that At the end of 2007-08, the government accounts surprised on the upside. The target for red using Centres fiscal deficit to 3% had been exceeded, but during 2008-09, its expenditure shot up because of farm loan waiver, implementation of Sixth Pay Commission and increased allocation to several under-funded social sector programmes. I had then added, The Controller General of Accounts (CGA) data shows a 42% decline in Customs revenue in the fourth quarter. Likewise, Excise duty collection too experienced a sharp decline, falling 34%.

 

Apparently, the Government has had no money to spare for providing any Package for the garment exporters and has chosen to spend still more on what they call as Social Sector, which might give a temporary relief to the weaker sections of the society, in terms of palliatives, but this, to my mind, is rather a short-sighted policy or a political decision on an entirely an economic and development issue. Anand Sharma, a transplant from Ministry of External Affairs to a promotion of Commerce and Industry Minister, is after all neither a Finance Minister nor the Prime Minister to have a final say on the national priorities of the UPA Government-and I have virtually no hesitation to reiterate what I had concluded my said article by saying To my mind, the Government could afford to be liberal on modifying procedures, which might help to reduce the transaction charges, but it would be nave to expect the Government to offer more than some lollypops.


Let me even further state that garment exporters or their trade bodies should not expect any fiscal relief or reform even in the next years financial Budget i.e. for 2011-12, unless the Government of the day corrects its vision and priorities-notwithstanding anybody taking over as Minister of Commerce and Industry. It is a matter beyond the Commerce Minister.


The Budget Has Provided Just What The Stitch Times Had Predicted Two Months Back.