Govt may allow free trade zones

With the Government agreeing to dismantle quantitative restrictions maintained on 1429 import items by April 1, 2001, as many as 700 odd items under Special Import License scheme are to be shifted to open general license to allow free imports.

Consequently several of the 700 odd items under restricted list will be shifted to SIL as India is entitled to maintain quantitative restrictions for one more year. These items under SIL are likely to attract five per cent special addtional duty to provide a level playing field to domestic industries, the sources said.

The government may seek to mollify exporters peeved by a rollback of tax concessions but it will keep reforms moving ahead in its latest Export-Import (Exim) policy plan due on Friday, analysts and industry officials said.

India has five-year-long Exim policies – the current one runs from April 1997 to March 2002. But it fine-tunes the policy every year and Friday’s announcements will deal with the financial year 2000/2001. A recent run of healthy export growth could give Commerce Minister Murasoli Maran the confidence to phase out in the next financial year import restrictions on more than the mandated 714 items, officials said.

India currently has restrictions on imports of 1,429 products which it has to ease under commitments to the World Trade Organisation (WTO). "Overall, he is on a good wicket given export growth. But don’t expect anything sensational," a government adviser said.

Indian exports grew 11.32 per cent to $30.22 billion in the April 1999-January 2000 period compared with the same period a year earlier. Commerce Secretary PP Prabhu, one of the chief architects of trade policy, said last week that this growth rate would be sustained for the whole fiscal year. On the potential list of free imports are processed food, coffee, tea and cotton. But imports of items with political sensitivities like grain and second-hand cars may be put on the backburner.

But Maran and Prabhu must first soothe irate exporters. In his budget for 2000/01 (April-March), Finance Minister Yashwant Sinha introduced a tax on one-fifth of exporters’ income and a tax on 100 percent of their earnings in five-years time. "He (Sinha) has forgotten one thing. How did you bring back the gold you pledged abroad? Who got it back? …exporters," says Navratan Samdria, president of the Federation of Indian Export Organisations (FIEO).

SPECIAL ECONOMIC ZONES PLANNED:Faced with an acute balance of payments crisis in 1991, India had to temporarily mortgage part of its gold reserves in the international market until an International Monetary Fund package helped the country get over the problem.

According to analysts and local media reports, Friday’s amendments to the Exim policy will include extending and rationalising some fiscal incentives. "Given the current mood, he may find it hard to remove other incentives like the duty entitlement passbook scheme (DEPB)," the government adviser said.

Under the DEPB scheme, exporters earn entitlement points for exports, which are then traded for lower duties on imports. Officials say Maran is also likely to rationalise another popular incentive, the "exports promotion capital goods" imports scheme. Instead of the current structure based on zero and 10 per cent duties on imports, he is expected to announce a flat five percent levy.

Fiscal benefits on certain economic activity, labelled deemed exports, although products do not leave the country, are expected to be extended to sectors like power generation, transmission and distribution, hydrocarbons, fertilisers, railways, roads, ports and aviation. Maran is also expected to give trade a leg-up by increasing the number and scope of free trade zones to encourage export-oriented foreign direct investment.

The creation of free trade zones was announced in last year’s changes to the Exim policy, but the plan never took off. The free trade zones — modelled on China’s Special Economic Zones — are to have adequate infrastructure, special labour laws and tax incentives on international trade at a local level, with minimal bureaucratic interference.

But, FIEO’s Samdria says free trade zones look good only onpaper. "It’s going to be difficult to implement. Chinese laws are different, stricter than our laws."