India Wants to Export $200 Billion a year to USA By Vipin Agnihotri

It has come into the notice of The India Street that the Indian Commerce ministry has revised the export target to US $ 160 billion for the year 2007-08, and to US $200 billion for 2008-09. In my opinion, these are very ambitious targets, especially when one take into account the fact that rupee is appreciating. It is worthwhile remembering that despite the appreciation, immediate export figures for April has shown a growth of 23 percent, while the trade deficit has widened. Last year, commerce ministry unveiled the annual supplement to the foreign trade policy, announcing changes that fell far short of the expectations. “The major modification, which exporters had looked forward to, was related to duty leviable under the Export Promotion Capital Goods (EPCG) scheme,” pointed out Rahul Singh, noted economist based at India. Not so long ago, the finance minister had brought down the basic customs duty on most capital goods to 7.5 percent. Therefore, expectation was that the duty payable under the EPCG scheme would be brought down from 5 percent to say 2.5 percent or even zero. At this point of time, the effective duty saving for most manufacturers or service providers, who can take Cenvat credit is around 3.11 percent and for most others around 25.86 percent. The export obligation for almost all is around 2.06 times the value of the capital goods imported, which is down from the 2.53 times of before, when normal basic customs duty rates were brought down from 12.5 percent to 7.5 percent on most capital goods. An important modification that the commerce ministry announced related to import of spares under the EPCG scheme. Fact remains that spares of any imported capital goods can be imported under the scheme, but the actual text of the foreign trade policy says that spares of any existing capital goods, whether imported or not, can be imported under the scheme. The customs notification deletes the clause that payments received against counter sales in freely convertible foreign exchange, through banking channels as per RBI guidelines shall be counted for fulfillment of export obligation in case of service provider in the retail sector. Interestingly, customs notification does not say that foreign exchange counted towards fulfillment of export obligation (over and above the average) shall not be eligible for

incentives/ rewards under promotional schemes. More duty credits are expected to hit the market very soon, bringing down the premium on duty credits under these schemes and Duty Entitlement Passbook schemes. Indian economy now awaits the impact on inflation control measures of the government.

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