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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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