The current fiscal will be a challenging period for Indian exporters, not only with uncertainties reigning in India's traditional export markets like the US and the European Union (EU) but also with rising inflation posing threat to several emerging economies; things may change in global trade but at present difficulties are clearly evident. In this scenario, the nation's exports may reach USD 275-280 billion for this fiscal only if we are lucky, said Commerce Secretary, Rahul Khullar in an exclusive interview with SME Times
                                                                                                                                                                                                                                   Excerpts of the interview...                                                       
India's exports surged 37.5 percent to $245.9 billion in 2010-11 and has substantially surpassed the official target of $200 billion. What is your take on this?
Rahul Khullar: I have been saying for the last two or three months that 2011 will be a very difficult year for a number of reasons. One is the recovery in the United States which grew very surprisingly last year. But the news that is coming up from the job market are not particularly good. The expectation is that 2011 will not be very good in the US. In the EU, problems with Greece, Ireland, Portugal and all sorts of problem are there. It is not that Greece, Ireland and Portugal account for very large markets but there is spin-off and knock-off effects on Europe itself. So, that hurts.

And, whether you like it or not, the prospects for Europe does not look all that gay and Germany is  doing well. The situation can change at anytime. Today Japan is having trouble already for Fukushima. So, in a sense what I am trying to tell is that the traditional developed country's markets where much of our exports go are facing difficulties. In the rest of the world, there are problems in terms of very high prices of commodities like in agricultural or industrial commodities, metals, gold, oil, crude, wheat, soya, edible oil etc; prices of everything is high.

So, what is going to happen is that in many emerging market economies where inflationary pressures are beginning to show ( may be in the later half of 2011), we will see monetary policy in action, which will tamper inflation and then as the interest rate rises this will also tamper growth and as it tampers the growth, implications of that is there. In fact, the demand conditions would not be as good as expected. So, the prospects are not that good at this point of time. Things can change but right now I would be very surprised and I think it is too early to make estimates; but if you are going to ask me today, I think that exports this year would reach USD 275-280 billion. if we are lucky.

The Commerce Ministry has targeted to double the nation's merchandise exports to $500 billion in the next three years. Could you please brief the strategy to achieve it? Are you looking to give some support (in the form of sops) to the sector ?
Rahul Khullar: That will come out in the Foreign Trade Policy (FTP) and the strategy is being translated into initiative and that is being done now. I can't tell you right now. No, we are not providing any sops for supporting exporters in this strategy paper. That is not provided.  What support in the terms of subsidies or assistance to exporters will come as a part of the Foreign Trade Policy (FTP). And, that is not a part of the strategy document. The strategy document is merely laying out what needs to be get done and some broad sectoral initiatives.
 
Your reaction on the trade deficit?
Rahul Khullar:The trade deficit on merchandise accounts was becoming very large like 10 percent of GDP that has contracted to 7-7.5 percent or so. I think that level it is manageable but our dependence on critical imports like fertilizers, POL, edible oil, pulses, etc., and also machinery, equipment, etc, means that we are vulnerable to large influences in our import well. Unless our exports increase dramatically, we could not see merchandise trade out of gear, which is why we have drawn up to strategy. I think USD 100 billion is too large for our merchandise trade. And, we need to keep that under check, that is all I can say.

Compared to last year's USD 109 billion trade deficit, this year it has been USD 105 billion, but as I have said publicly that USD 105 billion is an underestimate because the import numbers for 2010-11 are still being revised because the computer system crashed at a critical point of time between January and March. So, we actually don't have accurate data on all these things.

Will the introduction of 18.5 per cent MAT impact the concept of Special Economic Zone (SEZ)?
Rahul Khullar:I think, the critical thing that will determine the future investments flowing into SEZs is what happens in the Direct Taxes Code (DTC). The DTC envisages the MAT 18.5 percent and the active rate comes down to 20 percent. Now, if the MAT is implemented, it will seriously change the incentives for establishing a SEZ and also setting up a unit under SEZ. Now, the DTC is still under debate; it is in the parliamentary standing committee and let them look at it. They will invite stakeholders to give comments and will finalise their recommendations. After then they will send them to the government and it is for the government to take the decision on whether they want to go with 18.5, 15, or 10 or 20 percent of Minimum Alternative Tax (MAT).  My sense is that if you keep the rate of minimum alternative tax so high that it does not materially differentiate between the domestic tariff area (DTA) and SEZ, then effectively you will choke all incentives to establish a SEZ.

Any development on the extension of the Duty Entitlement Pass Book (DEPB) Scheme as exporters are constantly demanding for an extension of the scheme?
Rahul Khullar: There is no development for an extension. When the supplement of the Foreign Trade Policy (FTP) was issued in August, in that stage the Finance Ministry has made it clear that this is the last extension. It will not be extended any further. This is first last extension of DEPB and the scheme will be facing sunset provisions on June 30. Since September, we have been telling that it is over, DEPB is not going to come alive again. It was always supposed to shut down.

Exporters are saying to extend it, that is a separate issue. But the government's decision on that has been taken in convey more than eight to ten months ago. Yes, I am keeping in mind the exporters' demand. Of course, I have to. They are my stakeholders but I cannot hold out such issues as it is not within my authority to say 'it will be done or it won't be done'. What I can say is that a demand has been made to the finance ministry on this.

Report says that DEPB probably may get extended for another nine months, as the Goods and Service Tax (GST) has not been put in place and DEPB may continue till the introduction of GST. Is that true?
Rahul Khullar:I have no idea at all and when it will happen, I will tell you. I have received no such information. It was asked by the exporters that until and unless the GST is introduced, the DEPB should be continued but this argument was tried earlier but the finance ministry said no to it.

To support SME exporters what do you have in your mind? Is their any plan for an extension of interest subvention of 2 percent as this is beneficial for the SME exporters?
Rahul Khullar:We give benefits to all exporters. We don't distinguish between small, medium and large. I can't do that. The only place where we distinguish is when we give special benefits only to SMEs. For example, interest subvention has been very good to the SME sector and not to everybody over the last two years. That is not what I decide, that is also decided by the Ministry of Finance. And, another is targeting credit flow at subsidized rates to the SME sector.

For instance, for the engineering exports promotion, I will give incentives to everybody. I can't stay to SME and not to anybody else. It is too cumbersome to administer. But by giving a blind chit type of incentives to engineering exports, then whether you are SME or not a SME you are availing the benefits. I think we try to do it in that way. The second thing is that we target specific sectors, which are predominantly small and medium enterprises (SMEs).

Again, the leather sector is predominantly SME. There are no big leather companies. One is, if I could remember is the Liberty shoe otherwise they are all small and medium companies. Handicrafts, they are all small units. Carpets (handmade carpets)... which big industry is there in the handmade carpet sector. So, I think what we do is when we look at employment-intensive or small corporate entity sector, we look at sectors where the preponderance of the exporters would be small and medium industry because the industry itself is small and medium industry. And, that is the way to help SMEs.     

For instance, on chemicals and pharma, engineering, etc, these are very big exports in our country. I can't distinguish between big and small. And, there will be administrative nightmare while trying to this. And sometimes the problems of the SME sector are different from the large. The large enterprises do not have problems in getting credit but small enterprises do have. I think we have to look at the problems of SMEs somewhat differently. And solutions are not to be found in incentives specifically to SMEs for exporting but for more general solutions.

As per interest subvention of 2 percent is concerned, it has been closed and that would not be extended. It is not likely to be viewed again.

What is the latest development on Doha round?
Rahul Khullar: The negotiations are going on in Geneva. It is stuck right now. It is not moving forward. And, I think there is some effort to revise the discussion on NAMA this month. And, we will get a better picture on May 31. As of now it is stuck. Till then discussions are going on.

It will not be in the Trade Negotiating Committee (TNC) but in small groups where the Director General is leading people and also as the EU has put up a proposal on table on the NAMA sectorals. Those are being discussed right now. These are technical matters. The short simple answer to your question is that it is stuck and there were expectations that we could conclude it in 2011. Right now, the prospects do not look that rosy.

When can we expect the conclusion of Doha negotiations?
Rahul Khullar: God knows. No, at this point nothing. As I said that the atmosphere is just not that conducive at this point of time, so, I don't know how and whether it will get concluded.