Tightening purse strings & easing norms

The annual supplement to the foreign trade policy has not given any big-bang concessions to exporters with revenue implications. The focus has been on liberalising procedures.

This is good news for the finance ministry, considering that the revenue outgo on various export promotion schemes is estimated at Rs 41,000 crore. “The liberalisation of the EPCG scheme may result in some extra revenue outgo. But this would be more than off-set if exports continue to be bullish,� said government sources.

The move to allow concessional 5% capital equipment import in agri export zones under the EPCG scheme is set to cost the exchequer another Rs 400 crore, taking the tab to around Rs 4,000 crore.

The revenue loss for various export promotion schemes rose over the years. However, in 2004-05, the outgo was at the same level as in the previous year — Rs 41,000 crore. The biggest drain is on account of the DEPB scheme (Rs 11,700 crore), followed by the advance license scheme (Rs 10,000 crore).

In the run up to the foreign trade policy, finance minister P Chidambaram had made it clear that his ministry could only allow procedural liberalisation given the resource constraints. In fact, the EPCG scheme for agri exports is not a new scheme — it was announced by the commerce ministry last year but did not come into force.

The commerce ministry had, in fact, sought duty-free imports for agri export zones. However, the revenue department has now agreed to allow equipment import at a concessional 5% duty — on par with other sectors covered under the EPCG scheme.

Exporters in these sectors were major beneficiaries as normal imports would have attracted peak customs duty rate.

However, the government has in this year’s budget lowered customs duty on capital goods for various sectors, even as it has cut the peak customs duty to 15%.

The annual supplement to the foreign trade policy has sweeteners for exporters over and above the duty sops. They will have a lower export obligation and more time to fulfil this obligation. Exporters will have to export six times the duty saved over a 12 year period. This is in contrast to the normal EPCG window where exporters have to export eight times the duty saved in eight years.

The EPCG facility has also been extended to the SSI to promote capacity expansion as well as for the retail sector.