India's apparel exports are getting a hit due to sluggish demand from the US and EU markets. How much will the supplement of the Foreign Trade Policy 2012-13,declared on 5th June help to overcome the situation?

The Government has divulged a seven point strategy that includes interest subsidies to augment merchandise exports from India. This annual supplement exposed the scope of tax benefits on imported items, while aiming to incentivize local manufacturing, and encouraging import substitution. The scheme further plans to extend special subsidies for labor intensive exports.It has declared seven countries as its priority markets offering special sops for the export units based in the North East. The plan also makes e-commence eligible for enjoying export benefits.

Earlier the Government had announced a 2% interest on labor intensive sectors likelihoods, handicrafts, and carpets which ended on 31st March. The Government has extended it further, and more sectors would also be benefiting by it. The policy includes export tax sops helping the exporters to reach up to$360 billion in exports for the current fiscal. The policy aims to reduce transaction costs, through simplification of procedures and minimizing human interfaces. This would encourage domestic manufacturing for inputs required forthe export industry, thereby reducing the dependence on imports. It is also expected to help apparel exporters to gain a competitive edge in the global markets.

Withthe bilateral ties given much importance in the foreign policy, there are chances to improve trade relations with China seeking to expand a strategicco-operation. The external Affairs Minister S M Krishna has expressed buoyancy stating that India's Foreign policy keeps much focus on improving trade relations between the two countries. He spoke about India's desire to build better understanding and trust between the nations, which will help to build and maintain strong trade relations. This declaration was made after the US announced a major push into Asia-Pacific, especially in the South China with an intention to counter China's growing influence in the Asia Pacific region.

Indian Apparel sector gets the boost:

The new foreign trade policy is positively expected to aid Indian apparel exporters to attain their export targets. Amidst global uncertainties, this is expected to enable exporters to facilitate sustainable growth. Earlier, sectors like carpets, handlooms, handicrafts, and SME sectors have enjoyed incentives. With the new foreign policy, incentives are further extended to the apparel sector also.

Mr. Anand Sharma, after announcing the annual supplement to the Foreign Trade Policy said, "We have decided to extend the interest subvention scheme for another year till March 31, 2013". The 2% extension on interest rates for readymade garments till the 31st of March, 2013 is appreciated by the garment exporters. They believe this would bring some relief to apparel exports. The 2% market linked focus product scheme for US and EU exports is also appreciated by garment exporters. With EU and US, being the two major export markets for Indian apparels, the policy is expected to strengthen Indian apparel exports to the two countries.

EPCG (Export Promotion Capital Goods) Scheme:

A new post export scheme was also disclosed in which exporters can import capital goods by paying their duty in cash and get duty scrip later, after completing all the export obligations. The zero duty of EPCG scheme facilitates import of capital goods for pre-production, and post production with zero duty. However it is based on a condition that the exports must equal to 6 times of the duty saved on capital goods imported under the EPCG scheme to be fulfilled in 6 years from authorization issue-date. The scheme will be available for exporters involved in textiles & garments, basic chemicals & pharmaceuticals, handicrafts and more, subject to exclusions as provided in FTP.

India has a long history as a trading nation. Effective steps through Foreign Trade Policy are positively expected to play a vital role in delivering sustainable economic growth recovery.

References:

  1. Highlights of annual supplement to ftp 2009 -14 announced by minister for commerce, industry & textiles, Shri Anand Sharma On 5th June 2012.
  2. Economictimes.indiatimes.com
  3. Businessworld.in