NEW TRADE POLICY EXPORTS ORIENTED

If there is any sector in India’s economy that has suffered the most in the current global economic downturn it is the export sector. It has been recording consistent fall for the last 10 months now. In July, it registered a 28% fall. Merchandise exports fell by 27.7 % in July. In the first four months of the current fiscal exports have come down by 34% to $49.65 billion compared to $75.2 billion in the corresponding period in the last financial year. The overall growth in exports in 2008-09 has been just 3.4 % against over 20 % in the preceding 4 years. In volume terms it was $168 billion in 2008-09.

The only consolation however was that the Imports too registered an even steeper fall of 37% in July, which reduced the trade deficit by as much as 50 percent to $6 billion. But this was primarily due to fall in crude oil prices in the international market. Yes, the non- oil imports too fell by 24.5% which means there was less import of machinery and capital goods. But that may not be a flattering situation as it appears. Economists believe that a fall in both imports and exports is indicative of slower economic activity which is harmful in the long run. Imports in July fell for the 7th consecutive month.

The persistent fall in exports is due to contraction of world demand in countries which import goods and services from India. These are primarily Europe (36%) US (18 %) UK (16 %) and Japan (16 %). An ideal situation would be a rise in both imports and exports which, in the current economic scenario, will have to wait for some time. Protectionist measures adopted by the western countries have complicated the situation.

It is with this ground situation in view that the new Foreign Trade Policy, announced recently by the government seeks to tackle the issues that confront our economy. First, it aims at increasing the level of exports by providing as many incentives as possible to the exporters. This includes extension of Income Tax holiday for exporters for one more year and continuance of duty refund scheme till December 2010.The incentives available under the Focus Market Scheme has been raised from 2.5 to 3 %. Under the Focus Product Scheme these have been raised from 1.25 to 2 percent. Their validity periods have also been extended. Besides, a number of engineering goods and certain electronic items have been included in the Focus Product Scheme.

The exporters will now be able to import machinery and technology that they need to improve their competitiveness in the manufacturing sector, in certain cases duty free. Exporters will also be provided with adequate finances in dollars for this purpose by cutting down transaction costs. The fiscal burden on the government on all these measures is estimated at Rs. 2200 crores .

In a bid to extend the area of operation, 26 new markets have been identified for exports which include countries like Algeria, Egypt, Kenya, Nigeria, South Africa, Tanzania, Brazil, Mexico, Ukraine, Vietnam, Cambodia, Australia and New Zealand. These are the countries which have been least affected by the global economic downturn.
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