EXIM Policy 1997 - 2002

TEXT OF THE SPEECH DELIVERED BY HON'BLE COMMERCE MINISTER SHRI R.K. HEGDE ON 31ST
           MARCH, 1999 ON THE OCCASION OF RELEASE OF THE REVISED EXIM POLICY

    Every year amendments and modifications of EXIM Policy are announced at the beginning of the
financial year. Last April, I had announced a series of measures such as neutralisation of 5% Special
Customs Duty through the DEPB mechanism, lowering of threshold limits under the Export Promotion
Capital Goods Scheme for Zero Duty imports to several sectors, coverage of 300 more items under
DEPB. I had also announced several other measures aimed at bringing about transparency in the
Government functioning and reducing transaction costs for the exporters. I had also expressed the hope
that because of the signs of early revival of the world economy and the new strategy we were planning to
adopt, it should be possible for the country to achieve a high export growth rate of 20%. The expectations
regarding the world economy were however belied and in fact the situation became even worse. I
announced in August a further policy package comprising, inter alia, a reduction in interest rates, waiver
of Bank Guarantees, exemption of export promotion schemes from the Special Additional Duty. All these
measures coupled with the strong determination of our exporters to maintain their presence in the
international market despite all odds helped us, I believe, in atleast reversing the dangerous trend during
the second half of the year.

    The export growth rate during the period April to January this year is just 0.41 per cent, far below the 15
– 20 per cent growth rate, which was the target set by me, even though in Rupee terms the growth
reached 12%. The reasons for this disappointing performance are not difficult to explain. Many parts of
the world have continued to face recession during the year and the situation in South East Asia did not
improve as expected. What is more depressing is the fact that owing to fierce competition from the
countries which witnessed a massive devaluation of their currencies, there has been a drop in the unit
value of exports and this has been a real setback to us. During the second half of 1998, practically all our
neighbours namely Pakistan, Thailand, Indonesia, Bangladesh, Sri Lanka and even China have
experienced negative export performance. In a situation like this even the growth rate of 0.41 per cent
during April to January, is not something to be scoffed at. I would like to place on record my appreciation
of the sincere efforts made by our exporters during the year. They have risen to the demands of the
situation. Export markets, once lost, take a considerable amount of time to regain. I do hope that the grit
and determination the exporters have shown during this period by even sustaining loses would stand them
in good stead and would also bring them adequate rewards when the international situation improves
sufficiently.

    Nevertheless, there are certain lessons to be learnt from this year’s experience. I have circulated a
separate note, which gives sector-wise performance of our exports during the year. It is evident
threrefrom that we need to diversify our export basket. We need to encourage investment in those items,
which have greater export potential in the world. We have to increasingly shift to value added items which
can withstand the vicissitudes of price competition and recession in the world market. We need to
improve our production efficiency by integrating with the global economy faster. We need to adopt newer
technologies for modernisation of our production and attain scales, which can cater to global demands.
We need to improve our physical and financial infrastructure and also reform our labour laws. I can
assure you that in all these matters there is a forward momentum, though not fast enough. But I do hope
that the desired improvements will come about in all these spheres sooner rather than later. My colleague,
the Finance Minister, Shri Yashwant Sinha reflected the same view when he said in his Budget speech,
"the time has come to implement the second generation of reforms to make India economically strong and
fully capable of competing successfully in the evolving world order". These would include, I believe:
 

     i. Withdrawal of quantitative restrictions on imports.
     ii. Removal of restrictions on export of agriculture commodities and processed goods
     iii. Introduction of Electronic Data Interchange (EDI) / Electronic Commerce (EC)
     iv. Rationalisation of labour laws
     v. Introduction of self-certification in all Excise and Customs procedures, while at the same
     time, tightening the machinery for intelligence gathering and strict penal action against those
     indulging in deceptions, forgeries and frauds.
     vi. Revamping the commercial sections of our Missions abroad.
     vii. De-reservation of industries in stages.
     viii. Privatisation of cargo berths and sea and air port services.
     ix. All round improvements in infrastructure.

    I have elaborated my views about the essential ingredients for export growth in detail not as an alibi for
the poor export performance, but to make the point that EXIM Policy by itself cannot achieve a very high
export growth rate. Basic structural changes are essential to bring about and ensure sustained growth in
exports. Nevertheless, it contributes significantly towards creating a level playing field for our export
industry by laying down uniform rules for access to raw materials and capital goods at internationally
competitive prices thus assisting the modernisation and technological upgradation of our manufacturing
base. The issue of quantitative restrictions in the EXIM Policy is also required to be handled with finesse
and care. While making any changes in the EXIM Policy, I have always been guided by the need for
maximum transparency and minimum interface with the Government by the industry in its day to day
functioning. You may recall that I had announced last year that all Policy Notifications, Public Notices,
Procedures, ITC HS Classification and input-output norms would be simultaneously available on Internet.
Over a period of one year, I have received positive feedback about the usefulness of this facility. I would
like to complement the staff of DGFT and NIC for this achievement. I would also like to mention that in
some official circles there is a lot of reservation and even opposition to simplification of procedures on the
ground of possible misuse and loss of revenue. We all know that change never comes easy and we have
to struggle hard for bringing about basic changes in the mindset. We are on the job and we are determined
to push ahead in the direction of full transparency, simplicity and consequent minimisation of transaction
costs so that the country’s export can be maximised.

    This year’s exercise on policy changes has been undertaken with these factors in mind. In the Board of
Trade we had constituted some working groups to look into the EXIM Policy related issues. The working
group on systemic and procedural changes in the EXIM Policy under the Chairmanship of Shri Rajesh
Shah, President of CII, the working group on handicrafts and small scale industry chaired by Shri
Navrathan Samdaria, President, FIEO and the working group on agro- exports headed by Ms. Malika
Srinivasan have already submitted their reports and have made some valuable suggestions which have
been by and large accepted. I am thankful to the chairpersons and the members of the working groups for
their efforts and I also hope to receive the reports from the remaining group very shortly. I have also been
benefited by the interactive sessions organised by FIEO at a few centers in different parts of the country.
I am thankful to FIEO for their efforts. These meetings have been extremely useful and we have effected
many revisions in the Policy on the basis of these interactive sessions. The details of these changes are
contained in the handout, which has been separately circulated. I would like to highlight some of these
important changes.
 


    My Ministry is also charged with the responsibility of coordinating the implementation of the EDI concept
in the DGFT, the Customs, the RBI, the banks, the Export Promotion Councils and the ports. I am happy
that some progress has been made in this regard. This infrastructure, when completed, should lay the
foundation for the E-Commerce in the country to the immense benefit of the trade and industry.

    I am convinced that all restrictions on exports should go. So should unnecessary bureaucratic interference.
A beginning would be made on 1.7.99 when all the Export Processing Zones will be converted into Free
Trade Zones on the lines of those that exist world over. The idea is to ensure that there is no interference
from any department of the Government. I believe that exporters perform the best when they are left to
themselves without any bureaucratic interference. I am happy that the Finance Minister agrees with me on
this count. My idea is to corporatise these EPZs as they are in other countries.

    I do hope that all these measures will go al long way to assist the exporters in expanding their markets
thereby enabling the country to achieve significantly higher growth rate this year. I am happy that the
Finance Minister has conceded the industry’s demand for restoration of 100% MODVAT credit. The
reduction in the number of Excise and Customs duty slabs is also a welcome step towards introduction of
a full VAT system. I hope that the new export credit scheme in foreign currency at internationally
competitive rates recently introduced by the RBI would be found helpful by the exporters. The overall
reduction in the interest rates should have a favourable impact on the economic environment in the
country.

    We have been examining the functioning of our Export Promotion Councils and the need to restructure
them. A committee constituted on this behalf has made recommendations that are under discussion with
the Export Promotion Councils. We shall be taking a final view very shortly.

    In this Policy we have tried to address some of the concerns of our indigenous industry against unfair
competition from abroad. We have restricted the import of second-hand goods of all kinds and have
disallowed import of second-hand capital goods under the EPCG Scheme. We have, however, not been
successful in projecting the cause of the capital goods industry in relation to the Zero Duty import regime
applicable to some specially notified projects. The domestic capital goods industry is clearly disadvantaged
on this count and are almost on the verge of decimation. In fact, during the period April-December 1998
import of project goods alone has crossed 1.5 Billion Dollars in addition to import of machinery worth 2.5
Billion Dollars. I am of the firm view that supply of such project goods by domestic industry should be
treated as physical exports and I am pursuing the matter. I am confident the compelling logic of our
proposal will prevail and will be appreciated and endorsed.

    Several exporters – importers have represented to me that the Government has repeatedly turned down
their earnest demand for allowing, as a one time measure, revalidation of advance licenses where the
export obligations were duly fulfilled but the imports against such licences could not be made in time due
to certain unforeseen or unavoidable circumstances. They have argued that on one hand, those who had
already claimed the benefits of duty free imports under advance licences were given further time for
completing their balance export obligations, on the other hand, the exporters who had fully discharged
their export obligation in the first instance but could not make the imports within the validity of their
advance licences have not been allowed further time. This has deprived them of their entitlement of duty
free imports. On such exports they have also not been able to obtain any duty remission or draw back
which would have otherwise been admissible under normal circumstances. Their plea is that some times
compelling circumstances can lead to a failure to import as well as to export and the Government should
therefore treat the two situations alike and, in order to do so, allow, as a one time measure, revalidation of
the expired advance licences against which export obligations have already been completed. These license
holders have further pointed out that such a measure cannot be termed as ‘revenue loss’ since the export
obligations against such licences have been fully discharged thereby making the licensees fully eligible for
the benefit of duty exemption under the advance licensing scheme – the only snag being that these
licences have crossed the validity period.

    I propose to take up this matter with the Finance Minister again. I am convinced that both justice and
equity are on the side of such exporters.

    Because of last year’s experience, I am refraining from mentioning any specific export growth target. As
they say, once bitten twice shy. But the optimist in me sees brighter prospects for our exports compared
to what has been happening over the last few years. The policy changes I have announced today are
going to carry us into the next millenium. I have tried to keep that perspective in mind. I would urge the
trade and industry also to redraw their plans and projections and renew their efforts to make a mark in the
world market in volume, value, variety and quality. I want to assure the exporting community that some
more proposals, including further simplification of procedures, are under examination. The committee
constituted by the Finance Minister to reduce transaction costs will examine them. I hope the committee
will be forward looking and positive in their approach. Let me assure the exporters that if they need any
further backup and help from the Government for moving forward in the millenium spirit, I am prepared
to come back like last time during the middle of the year with necessary additional measures.