Jaitley plays Jaswant's song, makes room for services

NEW DELHI: Easier import of second-hand capital goods for the manufacturing sector, a boost to the services sector, a package for special economic zones and a huge cut in export obligation under the EPCG scheme are the highlights of the one-year export-import policy unveiled by Commerce Minister Arun Jaitley.
The policy also allows standalone oil marketing companies to import refined products for sale through their networks, bypassing state-owned companies like IOC.
The policy, which smacks of a new-found confidence in dealing with a globalised world, waives actual-user restrictions on import of capital goods that are less than 10 years old.
This means easier access to capital goods, and is expected to help manufacturing sectors like textiles, due for an overhaul. At the same time, this is bad news for the capital goods sector. About 90% of the capital goods used in the country are second-hand imports.
The policy comes in the midst of uncertainty created by the Iraq war. The minister, however, appeared unfazed as he announced an annual growth target of 12% to push exports up to $80bn by ‘07.
It appears the government views globalisation as a challenge that can be potentially beneficial for the country. Now that quantitative restrictions are gone, the challenge lies in identifying the drivers of exports.
The question is how. One of the biggest features of the policy, according to Mr Jaitley, is a shift of focus from merchandise to services. Hence, the policy is in step with the focus in this year''s Budget on services — Mr Jaitley carrying on from where Jaswant Singh left. He said the focus on services was decided after detailed consultations between Mr Singh and him.
So, incentives to boost special economic zones have been dished out: The government apparently banks on these to push exports. Supplies from the domestic market to SEZs will now be eligible for Duty Entitlement Pass Book or drawback benefits and be free from central sales tax.
Goods supplied to the domestic market by SEZ units will not attract the special additional duty of customs, making them 4% cheaper than imports.
The EPCG scheme has been changed to make imports easier. Instead of fixing the export obligation against the value of the import, the new policy fixes it against the import duty — the importer would have to export goods valued eight times the import duty saved. A back-of-the-envelope calculation shows that this virtually cuts the export obligation by one-fourth.
By permitting second-hand imports under the EPCG scheme, Mr Jaitley has also opened a new
avenue for key sectors like textiles to buy used plant and machinery from developed countries to upgrade quality at a competitive cost. Companies can now import capital goods for pre- as well as post-production facilities. The modified policy allows for the import of spares for upgradation of plant and machinery.
Apart from reducing the obligation, Mr Jaitley has also allowed its fulfilment by export of any product manufactured by the exporter. This means cumbersome procedures associated with linking the exported produce to the imported capital goods have been dispensed with.
This will also take care of fluctuations in the market, which sometimes render export of particular products virtually impossible.
The commerce minister has indicated his confidence about the strong growth potential of the service sector, by providing duty-free import entitlement up to 10% of the average export during the past three years. This facility can be utilised to import office equipment, spares and consumables. This facility would provide a big boost to key segments like healthcare, tourism and professional services — again, areas given special attention in the budget.
However, import entitlement for the tourism sector would be only 5% of the average import during the past three years. A negative list would also be prescribed to check the import of certain items, Mr Jaitley said while announcing the policy here.
While admitting that greenfield SEZs have not taken off, Mr Jaitley expressed hope that this segment would eventually grow into a major contributor for the country''s exports. Procedures governing these zones have been simplified in a big way and the government has permitted passengers travelling abroad to take goods from SEZs, just like duty-free outlets, to promote trade, tourism and exports.
Other areas of focus include export clusters and export-oriented units (EOUs) which have benefited in a big way due to procedural simplification. Export performance will not be enforced on EOUs; mere positive foreign exchange earning will do.
In a bid to encourage companies to take up agri export zones (AEZs), the government is planning to provide them with tax breaks. The incentive will be based either on the investment or the income earned from such AEZs. This move will provide a thrust to agri-exports, Mr Jaitley feels.
For the benefit of merchant exporters, the revised policy provides duty-free import entitlement to status holders like export houses for achieving incremental growth of more than 25% in their export basket. Sops have also been provided for gems & jewellery, hardware and software units while sick units have been provided extension of export obligation. For reduction in transaction costs, the government is moving towards implementation of electronic data interchange (EDI) at 23 ports. Provisions have also been made for online licensing attractive.