Press Conference by FIEO

At a press conference organized by FIEO on 30 January 2007 at New Delhi, FIEO President

Mr. Ganesh Kumar Gupta spoke about the following issues. He was accompanied by Mr. A. Sakthivel, Vice-President and Mr. Ajay Sahai, Director General, FIEO.

 

Mr. Ganesh Kumar Gupta, President, FIEO addressing the Press Conference. On his right is Mr. A Sakthivel, Vice-President, FIEO.

Introduction of Goods and Services Tax (GST)

The FM has announced a roadmap for GST. We as the apex chamber are of the view that if introduced in the country, GST will not only provide full rebate of duties to exporters but would also usher in clean and transparent tax administration. Our submissions in this regard are:

  • Necessary legislative changes required to implement it should be taken expeditiously;

  • Uniform GST rate may be decided in the Union Budget 2007-08 and we should gradually move our duties and taxes towards that rate;

  • Full EDI connectivity should be introduced in the tax administration so that such refunds are given instantly.

Our experience in VAT refund has not been satisfactory at all as we have found it cumbersome and time consuming.

Market Access Fund

We need to diversify our export market and introduce value added products in the existing markets.

  • This requires market studies, market surveys, product testing warehousing and an aggressive promotion strategy;

  • Australia under "Export Market Planning" assist companies to examine their export capabilities and under "Market Development Support Scheme" assistance is given to develop market overseas by offsetting high cost of participating in specialized industry missions and displays at approved trade exhibitions. In "Market Research Initiative Fund" a sum of US$ 5000 Dollar per firm is reimbursed for research and travel;

  • Scotland, through the "Export Marketing Research Scheme" provides financial assistance for undertaking overseas market research with market grant of 20,000 Pounds per application;

  • Canada provides financial assistance under "Trade Assistance Programme and Services for Market Exploration, Trade Show, and out-bound missions;

  • Malaysia has an MDA Scheme to assist SMIs to enter export market and develop export marketing expertise. A sum of RM 40,000 is available for each project;

  • SMEs hardly have wherewithal for such aggressive marketing strategy and their efforts need to be supplemented by a Market Access Fund which should be supplemented by an annual grant of approximately 0.5 to 1% of the exports;

  • FIEO is also exploring the possibilities of opening warehouses for SMEs in Moscow, Poland and Brazil.

  • We are also examining the feasibility of opening India House at important trade centers.

A journalist interviewing Mr. Ganesh Kumar Gupta

Thrust on Agro and Agro Products Export

  • FIEO, as apex body of all export organizations, puts equal emphasis on export of all products. However agriculture is the most employment generating and key to all inclusive growth of economy;

  • Export of agro products witnessed a growth at a CAGR of 12.22% in the first four years of the Tenth Five Year Plan. During 2005-06, the export of these products accounted for 9% of the total exports from the country.  This itself has been a big leap forward in the background of shrinking size of holding, imperfections in the product and factored market, increased cash component in the cost of cultivation and the absence of safety nets;

  • The dwindling of share of agro exports in our total exports is a cause of concern. Today, we are exporting products more petroleum based than agriculture exports. Agri exports needs to be pushed to create employment opportunity, better return to farmers.

  • The issue of subsidy on agri exports is aggressively being taken up by our government in WTO.

  • There should be a stable agri-export policy. The switch-on-switch-off policy is not helping the exports as can be seen in sugar and other products. The market is developed over a period of sustained efforts but is lost once one fail to keep his commitment for whatsoever reasons;

  • There is an urgent need for heavy investment in cold chain in order to reduce wastage of agricultural products such a food grains, fruits, vegetables and spices. Corporates may be encouraged to join this sector so that the value chain is firmly established;

  • We need to identify food processing clusters in the various parts of the country on the lines of industrial clusters. Industry may be encouraged to be in the whole value chain of the product so that nothing is wasted and full value of the product is realised;

  • Encourage Brands in the food processing sectors. The present excise policy of levying duty on branded package foods need to be reversed.

Infrastructure

Infrastructure is the biggest bottleneck for exports as well as manufacturing. We need to increase our expenditure on infrastructure. It is encouraging to note that government also aims to invest about US$ half a trillion on infrastructure in next five years:

  • The present infrastructure would not be able to take the load of increasing exports by 2010. We already have constraints and delay at ports during peak hours.

  • We need to augment our port capacity from about 500 million tonnes at present to 1000 million tones by 2009, if we have to achieve exports of US$200 Billion by 2009.

  • Low productivity at a number of larger ports has been a major cause of concern to port authorities. Even the best equipped container ports such as Chennai and Jawahar Lal Nehru Port have productivity levels of about 12 TEUs (Twenty Feet Equivalent Units) per vessel per hour as compared with about 30 TEUs in Colombo and 60 TEUs in Singapore.

We need uninterrupted quality power at competitive rates.

  • The power cost in India is at least two-and-a-half time higher than the international benchmark which in some sectors makes us uncompetitive

  • Government has made a beginning by providing duty free fuel to units having captive power plants but such units are only handful. Mechanism needs to be found to provide power at near the international benchmark rates.

Special Economic Zones

  • We welcome the scheme of Special Economic Zones (SEZs) as they are vital not only for boosting the country’s exports but also for generation of employment, creation of world-class infrastructure and attracting foreign direct investment (FDI) into the country. 

  • In the next 5 years, if all the projects get implemented, investments by SEZ Developers are expected to be over US $ 60 billion (Rs.3,00,000 crore). 

  • By December 2007, it is expected that investments of Rs.1,00,000 crore including Rs.25,000 crore FDI will take place in the SEZs. 

  • SEZs are expected to employ 5 lakh people by December 2007.  Many of these SEZs are recruiting people from rural areas and providing them training for operations in the SEZs, as we have seen from Gem & Jewellery SEZ in Hyderabad, Textiles units in Mahindra SEZ in Chennai and other new SEZs like Nokia, Flextronics in Chennai, Apache SEZ, Brandix Apparel SEZ, Divvy’s Laboratories in Andhra Pradesh and Rajiv Gandhi Technology Park in Chandigarh".

Services Exports

Keeping in view the importance of Service Sector, FIEO recently organized an International Congress on Trade in Services on five major service sectors in the last quarter on Health, Education, Consultancy, Travel & Tourism and Science & Technology.

  • Today, our services sector comprises of approximate 1.5% of the global export in services. However, our aim is to help Government to make it to 2% in short-term and 4% in long term as India is the most preferred hub for Services Sector Exports because of following reasons:-

  • Abundant, skilled, English-speaking manpower

  • Improving telecom and other infrastructure which is at par with global standards

  • Strong quality orientation among Indian companies with their focus on measuring and monitoring quality targets

  • Fast turnaround time and the ability to offer 24x7 services based on India’s unique geographic location that allows for leveraging time zone differences.

  • Proactive and positive policy environment which encourages ITES/BPO investments and simplifies rules and procedures.

  • A friendly tax structure, which places the ITES/BPO/Services Sector Exports industry on par with other exporters.

FIEO has identified few focus areas for growth of service sector viz:-

  1. Countries in African Region like Egypt (Tourism), Ethiopia & Kenya (Education);

  2. Countries in European Region like Greece & Spain (Tourism);

  3. Countries in Middle-East like Bahrain & Oman (Education);

  4. Countries in Asia like Indonesia, Sri Lanka & Myanmar (Health);

 

TABLE 1

  
Sector Transaction costs as % of export revenue (Present Survey) Transaction costs as % of export revenue (1998 survey)
Textile/Garments

3 - 10

15
Engineering goods 

5

10
Pharmaceuticals

8

10
Chemicals

5

14
Computer software

1 – 5

10
Agro-Industries

1-2 

7-8.5

Transaction Cost

A survey conducted by Exim Bank in 2002 shows the decline in transaction cost as compared to the earlier survey conducted in 1998. See Table 1.

  • However, reduction of the transaction cost does not entail a revenue outgo and, therefore, should be pursued with all vigour to make Indian exports more competitive;

  • EDI connectivity amongst all trading partners within a specified time frame: EDI connectivity amongst all agencies will not only reduce the transaction time but will also do away with the repetitive information sought by other agencies. "EC/EDI trade" project has already been initiated by Department of Commerce to automate all agencies concerned with international trade. Department of Commerce should announce a firm date for EDI connectivity amongst all agencies so that transaction cost can be reduced to a great extent;

A view of the media persons at the Press Conference

Single Bond to be executed under Export Promotion Schemes:

One company may be asked to give a    single bond for all duty free clearances under various schemes.  At present a company is required to submit license-wise bond to the customs authorities which is time consuming and cumbersome.  Since all major customs ports are having EDI connectivity, the company may furnish bond at one customs house for clearance of goods at any customs port under any scheme;

  • Dispensing with the requirement to have separate bank accounts under Duty Drawback Scheme: At present exporters availing the Duty Drawback facility are required to maintain separate bank accounts at each port. This not only adds to the transaction costs of the exporters but also block their money. A system may be devised where the exporter may maintain only one account with the Customs. The Drawback drawn at ports other than where he maintains the accounts may be electronically transmitted to the exporters account or drawback may be disbursed through cheques till such time electronic transfer system is made operational by DOR;

  • Coverage of export promotion schemes under customs "Risk Management Module and Accredited Client Programme": Most of the imports takes place under export promotion schemes. The present risk management module and ACP of Customs do not cover export promotion schemes. With the result majority of the exporters/importers are denied the benefit of the accelerated cargo clearance. CBEC should cover all export promotion schemes in its various cargo clearance facilitation schemes;

Free Trade Agreements

The deadlock in WTO and increased intra-trade among regional blocks has prompted India also to go for such an agreement to promote bilateral trade and investment with members of such regional blocks. CCEA with Singapore has led to multi-fold increase in Indo-Singapore trade and investment. Indo-Thai FTA has led to increased bilateral trade between the two countries. FIEO as an apex export promotion organization welcomes any FTA as it provides greater market access to Indian exports. FTAs do provide imports at lesser value to make exports products further competitive.

However, to avail full benefit of FTAs, we need to address internal fiscal issues, labour and infrastructure reforms so that the industry could reap the same.

Indo-ASEAN trade has burgeoned from US$ 2.4 billion in 1990 to US$ 23 billion in 2005 and is expected to cross over US$ 30 billion by 2007.

India ASEAN FTA will provide greater market access to Indian products particularly gems and jewellery, electrical machinery, four wheelers, pharmaceuticals, agro processed products, plastic and rubber products and metals such as iron and steel.

The importance of the FTA can be gauged from the fact that half of the world population lives in these countries with gross national income of over US$ 16 trillion which is larger than EU or NAFTA.

Issue of Revenue Loss

A wrong impression has been created that exporters are given sops of more than Rs. 35,000 crore every year. But does refund of the duty paid by exporters to make their product competitive is a sop. In 2004-05, the revenue exemption under various schemes including duty drawback was close to Rs. 40,000 crore. If one looks it against an exports of Rs. 3,60,000 crore in 2004-05, it works out to just 11%. Considering average customs duty of 15% and excise duty of 16% (barring CENVAT in some schemes), this reflect a correct picture. The problem of the government is that this figure as a percentage of government revenue is going up every year simply because exports are growing between 2.5 times to 3 times of manufacturing growth. I would request you to enlighten everyone that these refunds are not sops but legitimate dues to exports.

Federation of Indian Export Organisations
New Delhi, INDIA.