Changing the rules of the game

Published : Apr 15, 2000 00:00 IST

The Exim Policy document spells a whole new set of priorities and leaves a trail of anomalies.


THE Exim Policy announced on March 31 by Union Minister for Commerce and Industry Murasoli Maran sets the tone for the denouement, as the last vestiges of half a century of protectionism are irrevocably dismantled to make way for the 'brave new world' or dained by the World Trade Organisation (WTO). The policy lifted the quantitative restrictions (QRs) on imports on 714 of the 1,429 items hitherto regulated.

The list of items now put on Open General Licence (OGL) will enable the well-heeled to dine on, among other things, Russian caviar, washing it down with Colombian coffee, served in Wedgewood crockery. Affluent sections have obtained the goodies and paid for them through their overseas numbered accounts. Now they will have the convenience of buying them from the neighbourhood supermarket and paying in Indian currency. The list consists predominantly of primary products; it also includes dishwashers, furs kins, leather handbags, marble floor tiles, golf carts, clocks and toys.

The QRs on the remaining items in the list will be phased out from April 1, 2001. Of the 715 items for which QRs are still applicable, 444 are in the restricted list, 230 are under Special Import Licence (SIL), and 41 are canalised. The list of items fr eed by the new policy includes 58 items reserved for the small-scale sector. These include rear-view mirrors for vehicles, lead crystal drinking glasses, ceramic sinks, washbasins and sanitary fixtures in porcelain and china, electrothermic appliances, b urglar and fire alarms, several categories of shoes, unpolished marble and polished granite blocks and tiles and cement tiles for mosaic. Of the 812 items reserved for the small-scale sector, 576 are already freely importable, and to these the new policy has added 58. However, dereservation of these items from the small-scale sector, which should have preceded the measure, has not yet taken place. This has created an anomalous situation wherein large domestic companies cannot manufacture these products, but overseas manufacturers can export them freely to this country.

In a bid to replicate China's success in the export trade, Maran has mooted the idea of setting up Special Economic Zones (SEZs). The SEZ is conceived as a crossbreed between a Free Trade Zone (FTZ) and an Export Processing Zone (EPZ), and the first two SEZs will come up in Pipavav in Gujarat and Tuticorin in Tamil Nadu. The Government will allow 100 per cent Foreign Direct Investment (FDI) in these zones, provided the entire output is exported. The idea is to encourage multinational companies (MNCs) to make India a sourcing base for their global exports. The Commerce Ministry has written to the Finance Ministry requesting tax breaks for units located in SEZs. The policy does not require SEZ units to adhere to any predetermined level of value addition, export obligation, or input/output wastage norms. Instead, they would be subjected to criteria on the basis of "positive" foreign exchange earnings, calculated on a cumulative basis for a full year. Export-Oriented Units (EOUs) engaged in the export of granite, marble and other mineral products have been allowed to move capital goods outside their manufacturing premises for the purpose of excavation. EPZ and SEZ units have been allowed to import studded jewellery for repair, remake and re-export.

Besides, SEZ units will be treated as being outside the customs territory. They can import capital goods and raw materials on a duty-free basis, including from the domestic tariff area without the payment of terminal excise duty. However, their sales in the domestic tariff area would be subject to the payment of full customs duty.

The minimum size of a new SEZ will be around 400 hectares. Existing EPZs are proposed to be converted into SEZs. On the one hand, the Minister denied any move to relax labour laws in these zones; on the other he wants companies that export more than 50 p er cent of their turnover to be treated as public utilities. In effect, this would imply that laws such as the Essential Services Maintenance Act (ESMA) could be applied in the event of strikes. When asked by Frontline whether this would not be ta ntamount to relaxing labour laws through the backdoor, Maran said that his Ministry had only made a suggestion and that it would be up to the State governments to take a decision on this issue.

The Exim Policy has further liberalised the import of capital goods under the Export Promotion Capital Goods (EPCG) scheme by extending the facility to all sectors and capital goods. The policy has also removed the threshold limit of Rs.20 crores and wit hdrawn 10 per cent of the countervailing duty on such imports. All capital goods, including those required by the service sector, can now be imported at a flat duty rate of 5 per cent. Export obligations against imports under this scheme can be fulfilled in eight years.

The policy moots the phasing out of the Duty Entitlement Pass Book (DEPB) scheme by 2002, in order to fulfil the WTO obligation and to dismantle all export incentives. The pre-export DEPB scheme stands abolished, while the post-export scheme will continu e until 2002. According to the Commerce Minister, the DEPB scheme will be subsumed into one Drawback Scheme. The threshold limit of Rs.20 crores for fixing new DEPB rates has been phased out. Value caps will be assigned for products in whose case the DEP B rate is over 15 per cent, except in the case of branded products. There are 591 items in the value cap category, the majority of them engineering goods and chemicals.

The policy has discontinued granting the SIL. It will be abolished altogether from April next. The number of items in the SIL list has been pruned from 685 to 230. The number of items in the SIL were a major export incentive since they could be traded at a premium. Second hand capital goods that are up to 10 years old - can be imported on surrendering the SIL without obtaining any licence.

The new policy brings the replenishment (REP) licence back. Under the scheme, a manufacturer exporter or a merchant exporter can import inputs used in the manufacture of goods without paying basic customs duty, surcharge or special additional duty after obtaining a duty-free replenishment certificate (DFRC). Under the new policy, DFRCs will be issued only in respect of export products covered under the standard input-output norms as notified by the Directorate-General of Foreign Trade (DGFT).

To boost project exports, the Commerce Minister has announced that project exporters, construction companies and service providers with a domestic turnover of over Rs.100 crores can now apply for an international service house status. It will be granted on the basis of a Memorandum of Understanding (MoU), with the DGFT undertaking to achieve exports worth Rs.15 crores for the next three years.

The policy seeks to rope in States in the export promotion effort. A corpus of Rs.250 crores will be set up and the amount passed on to the States so that they may set up the necessary infrastructure for exports. According to Maran, State-level bottlenec ks have slowed down exports and these need to be addressed. The details of this scheme will be announced soon. The Minister also wants the States to relax labour laws for that units which export half their turnover.

"Exporters have to adhere to delivery and quality schedules and therefore it is necessary to ensure that there is no disruption in their schedule," says Maran. Hence the suggestion that States declare such units public utilities.

An innovative scheme announced in the Exim Policy is the Diamond Dollar Account (DDA) Scheme, which would allow exporters to retain their export proceeds in a dollar account. The new policy also announced personal carriage of import parcels, REP licences for the duty-free import of consumables, import of gold directly from foreign buyers for jewellery making and the re-export and export of jewellery by speedpost. The DDA can be used by exporters to import rough diamonds or to purchase rough or cut and p olished diamonds from another DDA holder. REP licences for the duty-free import of consumables required for gem and jewellery items have been announced. Jewellery samples up to 2.5 per cent of the value of exports during the preceding year can also be im ported against REP licences. The industry's demand for rationalising value addition norms has found a response in the permission to export plain jewellery with imitation stones or cubic zirconia.

Silk export norms have been rationalised. The policy discontinues the pre-export inspection of silk products' shipment by the Central Silk Board. Silk can now be imported under SIL. Branded exports have been given certain sops as well, such as double wei ghtage on free on board (f.o.b.) on exports made by units having International Organisation for Standardisation (ISO) or equivalent level of certification for status determination. As a boost to pharmaceuticals, biotechnology and agro-chemicals, equipmen t for research and development can be imported free of duty up to 1 per cent of the f.o.b. value of exports.

The Government will set up an expert group on information technology (IT) to look into the policy and procedural changes that are required to be introduced in government departments to remove factors that hinder the growth of the software sector. The Exi m Policy does away with customs bonding for IT and other service sectors. It also envisages allowing electronic filing of licence applications in all the ports by June 30, 2000.

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