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The Centre on Sunday lifted all quantitative restrictions on exports and announced a package of fresh fiscal incentives for industrial units in the country's 14 Special Economic Zones.
Commerce Minister Murasoli Maran hopes that the export-boosting measures in the five-year exim policy he unveiled on Sunday will push Indian exports to $80 billion by 2007 from the current $46 billion. If Maran's formula works, India will account for 1 per cent of world trade, up from .67 per cent now.
With ceilings on export of even essentials like rice, wheat and vegetables gone, two things are likely to happen. The government can look at markets abroad to sell excess foodgrain, instead of allowing it to rot in government godowns. And the farmer can increase the value of his produce through retail packaging. Till now, commodities like foodgrains had to be exported in bulk: sacks of rice, for instance, would be sent abroad where smaller quantities were packaged and branded for the retail market. Indian exporters thus lost out on the margins that are to be made from packaging. With the new policy, this will change.
Maran's second set of incentives is for industrial units in SEZs. For the first time, the Centre has permitted Indian-registered banks to set up overseas banking units (OBUs) that will act as foreign branches of domestic banks in the SEZs.
The OBUs will offer cheap foreign funds to units in SEZs at internationally competitive interest rates. Interest rates are abnormally high in India (about double the Western rate), and exporters find it difficult to compete because manufacturers, especially in first world and even China, pay far less to service their loans.
Essentially, Maran is introducing the global financial market into select industrial enclaves in India. This is exactly what the Chinese have done. And Maran, ever since his visit to China last year, has been trying to replicate the Chinese model.
SEZ units have also been exempted from paying central sales tax. They can make overseas investments without being bound by Finance Ministry restrictions. This includes even hedging on commodities.
The exim policy is, however, silent on the liberalisation of labour laws to attract investments in the SEZs. And it continues to offer duty concessions and remission schemes to exporters, defying pressure from the US, EU and Japan. The concessions mean that Indian exporters can price their goods more competitively against competitors from countries where such a subsidy doesn't exist.
MARAN’S FORMULA: EVERYBODY WINS
QUANTITATIVE RESTRICTIONS GO: No ceiling on volume/value of exports; goodbye bulk packaging: send goods the way you want them sold in retail stores
UNITS IN SEZs: Can now access foreign funds at (cheap) global interest rates. They can invest without restriction abroad. To get income tax and sales tax breaks
FOCUS AFRICA: Campaign to seek new market. Similar programme for Latin America and Russia was very successful
100 INDUSTRIAL CLUSTERS: That have done well (e.g. Tirupur for hosiery, Panipat for blankets) get several benefits, Rs 775 crore set aside to fill infrastructure, tech gaps
SPECIFIC CONCESSIONS: For cottage industries and handicrafts, gems and jewellery, leather, textiles and chemicals and pharmaceuticals exporters
TRANSPORT SUBSIDY: On the export of fruits, vegetables, flowers, poultry and dairy products.
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