Business

Import duty on export inputs to be slashed

By Our Special Correspondent

CHENNAI FEB. 19. Reduction in import duties on inputs of identified 220 thrust items for exports to the extent justified by the expected depreciation in the exchange rate of the rupee will be a key element in implementation of the government's medium term export strategy announced recently, according to H. A. C. Prasad, Advisor (Economic) in the Commerce Ministry.

The reduction in duty commensurate with the fall in rupee value as a result of the adoption of an "appropriate'' real effective exchange rate (REER) eliminating "overvaluation'' of the rupee would improve the cost competitiveness of India's exports, without at the same time affecting domestic manufacturers of such inputs because of a corresponding rise in the rupee cost of imports, while "sensitive'' could be protected by hiking duties up to WTO-bound rates, Dr. Prasad said here today.

Making a presentation on the medium term strategy (2002-07) at a meeting organised by the Confederation of Indian Industry-Southern Region (CII-SR), Dr. Prasad said the proposed approach to tariffs would substantially reduce the transaction cost in foreign trade and thus reduce the relevance of incentive schemes (such as advance licences, DEPB and duty drawback).

Dr. Prasad indicated that WTO-compatible support/subsidies that the Government might resort to would include those aimed at countering the effect of sanitary/phytosanitary measures and also of non-tariff barriers imposed by importing countries, especially developed countries, and meeting environmental standards.

The strategy would also involve shifting — in accounting terms — of the power sector subsidy to agriculture, to which India was entitled under WTO norms, and reduction in the cost of power supply to industry, which was cross-subsidising the farm sector.

"Many exporters say that once the transaction cost and power cost are reduced, they do not need subsidies to compete in the world market,'' Dr. Prasad said. Government assistance to small and medium industries, non-product-specific support and assistance for privatisation were also WTO-compatible and could be taken advantage of, he added.

The distinctive and pioneering feature of the strategy, Dr. Prasad said, was that it was based not mainly on the "revealed'' comparable advantage of India's products (namely, a study of the present export basket) as was the case with the "extreme focus'' approach adopted in 1993, but primarily on the "real'' comparative advantage based on "intensive research'' of the top 100 imports (in terms of the four-digit nomenclature) of the major markets, namely, the U.S., Europe and Japan, to identify high-potential items.

The potential items in India's present export basket were also examined. A study of price competitiveness in both these categories (namely, real and revealed comparative advantage) and the existing and tariff and non-tariff barriers in the categories had also been studied before arriving at the list of 220 thrust items in seven sectors, namely, engineering/electronics/electrical, textiles, gems and jewellery, chemicals and allied, agriculture and allied, leather and footwear and other items.

The list of items included 47 from the top one hundred imports of developed markets, 114 items from the top 100 exports of India and 59 items common in both the top 100 imports of major markets and top 100 exports to India.

Indicating that a similar medium term strategy was being prepared for service sector exports, Dr. Prasad said the details of the strategy for merchandise exports would be put on the Internet soon.

He also indicated that several identified export items would be encouraged to rely on the special economic zones (SEZs) for exploiting their potential.

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