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So what is the Exim Policy all about?

Salil Panchal/Morpheus Inc.

Flip through any of the key financial newspapers or publications or quick surf across electronic channels towards the close of the financial year in March and you would find that the government has announced its Exim (Export and Import) policy. Now what role does it actually play alongside the Union Budget? How relevant is the Exim Policy?

Let us take a closer look at key features of an Exim Policy.

The annual revision of the Export-Import Policy, scheduled for March 31 each year has assumed a lot of importance.

Who actually announces the Exim Policy?

From a notification point of view, the government has notified the Exim Policy for a period of five years (1997-2002) under Section 5 of the Foreign Trade (Development and Regulation Act), 1992. In earlier years, the Exim Policy used to be announced for a longer duration. The next five-year Exim Policy (2002-2007) will come through a fresh notification.

The policy is usually announced by the Union Minister of Commerce and Industry who co-ordinates with the Ministry of Finance, the Directorate General of Foreign Trade and its network of regional offices.

Whom does it apply to?

The regulations and restrictions apply to those involved in commercial trade through the export and import of items. This becomes particularly important in a country like India, where the import and export of items does play a crucial role not just in balancing budgetary targets, but also from an economy developmental viewpoint.

Exports in India are finally witnessing an upward trend at an estimated growth rate of 20 per cent in the last few months. This is an encouraging and heartening sign of things to come and the government's efforts should now be focussed to increase and sustain this recent upswing in Indian exports.

By announcing a separate policy what is the government attempting to achieve?

The main aim is to accelerate the country's transition to a vibrant economy and a leading global player with a view to derive maximum benefits from any expanding global market opportunity.

Thus providing access to essential raw materials, intermediates, components, consumable items and capital goods required to aid manufacture/production of items to boost economic growth will be encouraged.

Attention will also be paid towards improving the state of various key sectors like agriculture, industry and manufacturing sectors, making them competitive strength and generating new employment opportunities. This is done with the final aim to provide the Indian consumer with good quality products at reasonable prices.

All this sounds fine on paper. But then haven't things gone awry with India's policies over the years?

That has less to do with policies and more with prevailing circumstances. There have been several factors responsible for the previously disheartening performance of Indian exports. Over the past two years, large developed economies have witnessed a general slowdown in the manufacturing, trade and consumer-spending front.

Over the years, non-tariff barriers have also come up through the developed nations due to environmental concerns, technical and non-technical standards and the spurt of regional groupings. This has made it difficult for countries outside the group to penetrate and compete on an equal footing.

We cannot, however, blame the performance on global factors alone. Our exports share of approximately 0.7 per cent as a percentage of global trade is due to internal problems rather than external factors. Some of these factors include high interest on export credit, uncertainty in export policy and infrastructure constraints.

Paradoxically, these very low exports helped India beat the economic recession facing the entire world as it was less dependent on external factors.

We keep hearing of last year's Exim Policy being a landmark one. What was the key focus?

In the period April 2001-March 2002, the Indian government - prompted by a ruling of the World Trade Organisation's dispute settlement panel - decided to phase out quantitative restrictions on imports of remaining agricultural, textile and industrial products from April 1, 2001 onwards.

The lifting of QRs on the rest of the 715 items on schedule was an important step for India and all its trading partners. At least 1,429 items were subject to various kinds of import curbs, which will be removed over the next two years.

What were the import restrictions?

The Exim Policy prohibits import of certain categories of products, provides for conditional import of certain items while a majority of goods are now freely importable. A process called canalisation exists for some categories - which means these can be imported only by designated agencies.

What is the canalised list?

A number of items like urea are canalised. This means they can be imported only by designated agencies like MMTC and STC, the government's trading arms. An item like gold, in bulk, can be imported only by specified banks like SBI and some foreign banks or designated agencies.

Earlier, items like sugar, edible oil, wheat and rice used to be imported by the government through canalising agencies to meet domestic demand. However, ongoing liberalisation has led to many of these items becoming freely importable.

The items which are freely importable fall under the open general licence category. The OGL is also called the free list of imports - which means anybody is allowed to bring in items listed under this category.

There are various kinds of restrictions on imports. The banned or prohibited list contains sensitive items like explosives which are banned for security reasons. Then there are items which are banned for environment and pollution-related aspects.

Several items like wildlife and its related products are not permitted to be imported following international agreements. These items can only be imported for specific purpose with prior permission.

So which are the items which can be imported?

There are a large number of non-sensitive items - mostly consumer goods - which are currently allowed only if the importer gets a licence. This would relate to food and beverages products which hotels can import with a specific licence.

What are the current export promotion schemes?

The government had devised a number of schemes to provide incentives to exporters and encourage them to compete in the global market.

Allowing them to import raw materials free of any duty ensured this. Advance licence, Export Promotion Capital Goods (EPCG) scheme, SIL and the duty exemption pass book (DEPB) are among the incentive schemes.

These schemes were attractive when the customs duty levels were high, but these are losing their importance in view of the continuous reduction in import duty.

What is the SIL product?

There are products which could be imported against an instrument called SIL (Special Import Licence). This was awarded to exporters on the basis of their annual turnover. Exporters sell SIL in the market for a premium to improve their profits.

This category has been reduced substantially in the past few years as more items have moved to the OGL category. Over the past year, the SIL list has virtually ceased to exist, leaving only the prohibited list in the negative list category.

The prohibited list would thus consist of sensitive items like arms and ammunition, toxic waste and environmentally sensitive items.

In earlier years, since the items on the SIL list were not freely importable, one had to buy SIL and surrender it to the Directorate General of Foreign Trade (DGFT) to get permission to import these items.

What are the expectations from the Exim Policy 2002-03 to be announced?

The focus will be to lower transaction costs for players and make exports more competitive.

The forthcoming Exim Policy is set to continue with the existing system of canalising procurement of petrol and diesel through state trading companies. This means that if any multinational such as Shell sets up a retail outlet and imports products from its Singapore refinery for retailing though these outlets, they would require to canalise it through an Indian trading company like Indian Oil Corporation.

Media reports say that the finance ministry is expected to provide some benefits to suppliers. This would include tax breaks (possibly in the form of a service tax exemption) to all suppliers who send goods from the domestic tariff area (DTA) to the special economic zone (SEZ).

From a procedural point of view, a small committee may be set up to address procedural delays and provide a conducive environment for hardware manufacturing. The ministry of commerce and industry in the previous Exim Policy had discussed this issue.

So what will be the focus in coming years?

The Exim policies in coming years will focus on the need to allow exporters to concentrate on the manufacture and marketing of their products globally with very few discretionary controls and procedural delays.

The policy should enable the industry to enhance its competitiveness in the global markets and achieve its full potential in the areas of its strength.

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