Trade winds: Farmers, small firms in for a treat

NEW DELHI: Moving in line with the Common Minimum Programme (CMP) of the United Progressive Alliance (UPA), the government is slated to announce a number of concessions to exporters in the forthcoming Foreign Trade Policy — scheduled to be unveiled on August 31.

The emphasis of the new policy is on higher incentives to small exporters and the farm sector, while allowing the manufacturer-exporters to import cheap second-hand capital goods.

Established exporters with the status of export house, trading house, star trading house and super star trading house have reason to cheer about, according to highly-placed sources.

The government has finalised a plan to simplify duty-free imports for these recognised exporters, also known as status holders. As of now, these exporters are allowed duty-free import entitlement equal to 5% of their incremental exports or increase in exports on a year-to-year basis.

This entitlement is available for companies that have an export turnover of Rs 25 crore, if they achieve at least 25% growth in exports. These two criteria are now being revised downwards — minimum turnover of Rs 15 crore and minimum export growth of 20% — to enable larger number of exporters to benefit.

The government may also reduce the threshold turnover level for obtaining recognised exporter status, the sources said. Also, waiver from bank guarantee available to status holders would be extended to other exporters who have put in three years of credible operations performance.

The duty entitlement pass book (DEPB) scheme — popular among exporters — is likely to be put on notice, to be replaced by a scheme that is more in line with World Trade Organisation (WTO) norms. The Export Promotion Capital Goods (EPCG) scheme is being liberalised to allow import of second-hand goods older than 10 years. The current policy permits imports of second hand goods only if they are less than 10 years old.

It is understood that the decision to replace the DEPB scheme will not be part of the current policy, as it is likely to go only with effect from April ’05. However, the government may ask exporters in the textile and steel sector to obtain refund of taxes through the duty drawback scheme, rather than the DEPB window.

In the case of textiles alone, the revenue foregone through DEPB works out to Rs 1,600 crore. The government has already provided optional exemption to the textile sector from Cenvat, primarily to spare powerloom and handloom units. The total shift to drawback scheme for textile exporters, insisted upon by the finance ministry, may either be part of the policy or be notified immediately after the policy announcement.

While the government is coming out with a duty-free import entitlement of 5% of FOB value for the farm sector, exporters are pushing hard for sops to cottage industries as well. The export community has also sought transferability for the import entitlement, available under the scheme, for status holders.

The government is also coming out with incentives for development of export infrastructure and reduction of transaction costs. For example, the threshold limit for industrial clusters is being cut from Rs 1,000 crore to Rs 250 crore, so that smaller centres can also benefit.

The government will extend some of the sops available to export oriented units (EOUs) to other exporters too. The move will be in line with plans to amend the basket of incentives available for special economic zones (SEZs).