Action, not words

While the country’s export community welcomed Commerce Minister Kamal Nath’s Exim policy last year, the problem is that not too many of the announcements have been translated into action.

Opposition from the ministry of finance, for instance, has ensured that the duty entitlement rates promised have not been notified; the “target-plus” scheme, through which exporters who more than met their export targets would get additional duty-free entitlements, has also met the same fate in the sense that the entitlements have not been given out.

The Free Trade Zone Bill that was supposed to usher in China-style export zones with close-to-zero bureaucracy hasn’t been passed so far, and once again the problem is believed to be differences between the finance and commerce ministries on who will administer various operational issues.

So, when the new Exim policy gets announced at the end of the month, it would be a good idea to get various ministries on board first, and then make announcements.

When the concept of FTZs was first mooted by the NDA government, the reception was enthusiastic since it was believed that the usual labour laws wouldn’t apply here; it later transpired that this was something each state would have to decide upon, and could not be done centrally.

The country can, of course, expect some steps designed to reduce transaction costs, as the task force set up to deal with this has already submitted its report to the minister.

So, the new policy is likely to see forward movement on issues like reducing the number of documents to be filed, electronic data interchange, and so on.

It may also be a good idea to try and arrive at what a normative transaction cost is, and compensate exporters for anything that goes beyond this.

An important issue related to transaction costs is that of exemptions. Around 40-50 per cent of any book on customs tariffs (and the fact that these books remain so fat tells you how much more reform is required) relates to exemptions that are granted to different classes of importers for various reasons: their being small in size, their being exporters, and so on.

While the commerce ministry has in general favoured such exemptions, each exemption brings along with it its own transaction costs.

Hinges, metal locks and the back of photo frames, for instance, can be imported duty free by handicraft companies that are exporting the final product—but for this to be allowed the importer must be able to show that the import is less than 3 per cent of the FOB value of handicrafts exported during the previous year, and has to furnish a certificate from the relevant export promotion council with a detailed description of each item, its value, and quantity!

Imagine the paperwork involved as well as the number of clearances required and the number of people who have to be approached for signatures.

If the commerce ministry is serious about reducing transaction costs, the exemption raj has to go. Mr Nath’s colleague in finance failed to touch export exemptions in the Budget, so the ball is now in the commerce minister’s court.