Achche Din Agenda for Exporters

Working Paper No. 3/2014-DEA

India’s Merchandise Exports: Some Important Issues and Policy Suggestions

Dr. H.A.C. Prasad, Dr. R. Sathish, Salam Shyamsunder Singh

August 2014, Department of Economic Affairs, Ministry of Finance, Govt. of India

The paper prepared by Dr HAC Prasad, Senior Economic Adviser, Ministry of Finance has valuable suggestions in the compilation and analysis of day-to-day problems encountered by exporters and importers. The much awaited five year Foreign Trade Policy 2014-19 is round the corner. It can draw easily from the Prasad – Sathish – SS Singh report. The problem listed in the report have deep roots developed over the decades of the licence permit raj. The mere listing of these in the report should set the action agenda of the new Modi Government at the Centre.

To cite an example of the toughness of the problems in trade policy, Red Sanders value added products can be exported, but customs make vigorous checks of these products from policy and environment angles before permitting exports. The high priced Red Sanders wood logs exports are banned but exporters manage to slip them out of the country by so called value added products such as wood chip as a handicraft or utility item to mainly China. Seized stocks of Red Sanders from smugglers are also a problem. State Government auction the stock to defeat the original purpose of trade control. India has a monopoly on the wood. It should exploit the scarcity in the world market but it should also conserve the item. There is no easy solution in sight.

Nearly forty Export Promotion Councils are more than redundant today. With almost every information of export and import available at the click of a button, even pressing a wrong internet button also these days disseminate information! The book suggests revamping export promotion schemes, combining commodity boards and merging some EPCs. A welcome suggestion indeed which will lead to better allocation of public funds.

Certain government schemes aim at accelerating exports but in fact decelerate exports because of the burden of rules and regulations impeding the export efforts. For example, against advance authorisation licences exporters meet numerous problems. Customs do not permit deletion, additions of even clerical errors committed on AA schemes even though specific Section 149 of Customs Act 1962 spells out the need for allowing such amendments/corrections. Various suggestions for removing such bottlenecks are worth considering in the new FTP. This is specially so since AA is the main instrument for Modi’s “Make in India” campaign.

It is not clear how Arecanuts being imported from Nepal are under duty concession. This Himalayan country does not have any commercially viable arecanut plantations or farms. Nepal is not an Arecanut growing country. Only Catechu trees are available at border points The suggestion to look into illegal imports of Arecanuts from Nepal is a valid one as there is circumvention of origin in the import trade.

The suggestion that the safeguard duty on Carbon Black when imported under AA scheme should be done away with, is good. But it should be done not only carbon black but for all inputs imported under AA Schemes or any other similar export promotion schemes.

Many suggestions relating to transaction cost in the paper should be carefully looked into as it can help exporters and importers to substantially reduce the costs and make them competitive in the international market.

The ease of doing business index at page 28 of this paper should be an eye-opener for the government The conclusion is that radical changes in the Government set up and procedures is in escapable.

New notifications or operating procedure irritate exporters. There is need for full consultation on these before issue. We should move away from the culture of secrecy. A good suggestion is amendments/clarifications should be available on line from DGFT.

For ages, the LCL shipments issue has not been sorted out. Exporters wait patiently for the LCL containers to be loaded onto the vessels. The solution is that all shipping companies must be advised to accept all LCL cargoes mandatorily. The LCL issue is also relevant for imports. MSME can afford only LCL and Government should help them.

The examples given highlighting discrimination of FTA/RTA countries have to be seriously looked into. If these suggestions are accepted, discriminations removed, the purpose and meaning of such agreements with those countries can be fulfilled.

The requirements of the leather industry are well met but there is still primitive tanning method exists in this industry viz., bark tanning. In India babul is widely used, felling babul trees is against policy of protecting green forests. Instead Government should permit zero duty or just 5% import duty on wattle bark import which was the practice four decades back. India is a net importer of cartel based export of wattle extracts. There is no factory which produces wattle extracts in India. Of the two which came up after Independence, one is already closed and the other is in a financial mess. The anomaly of high incidence of import duty on wattle bark and very low customs duty on wattle extracts should be removed. Other ideas of leather industry in the Prasad Report will go a long-way to alleviate this industry’s woes, ultimately lead to increase in exports.

The suggestions in the report will help PM Modi’s “Make in India” campaign successful. Their adoption bring Achche Din for exporters and importers. A well done paper by Dr. Prasad and his team, Congratulations.

Tailpiece: The paper looks at traditional items in trade like tea, coffee, textiles etc. However, new items like plastic products, electronic goods, pharma goods, technical textiles and value added commodities like iron ore pellets have entered the export basket. The next version of the paper may cover these.

Further, another paper on import trade on these lines is required.

A Sathyanarayana, Trade consultant

sathya1954@yahoo.com