Arun Goyal | 12 Apr, 2006
The Foreign Trade Policy released by the Commerce Minister Kamal Nath
on 7 April, 2006 has disappointed trade. The complete withdrawal of the
Target Plus Scheme has taken the exporters by surprise, they expected
the continuation of the scheme under a new label in the value added
product segments such as textiles, engineering goods and chemical
products. The substitute to Target Plus under the title of “Focus
Product” covers a very small part of the export segment and here too
the entitlement is only 1.25 percent of the turnover as against five
percent in the scheme for fruits and vegetables export (VKUY).
trade is also not too happy with the postponement of the policy detail.
The new DEPB rate schedule, products and markets under the new ‘Focus”
initiatives and the customs notification under the advance
authorization scheme are still cooking in the bureaucracy’s pot.
The new advance license:
The only relief to the exporters is that they can now sell their
quantity based advance licenses, now called Duty Free Import
Authorisations (DFIA), in the market after fulfillment of the export
obligation. Traders too can buy these scrips and avail the exemption of
the 16.32 percent countervailing duty of excise as well as the four
percent countervailing duty of VAT imposed in the recent budget,
besides the existing exemption on basic duty of 12.5 percent. The anti
dumping duty which is applicable on many sensitive goods like Nylon
filament yarn too will be exempt in the hands of the trader.
new name of DFIA for the advance license may fool the VAT officials of
the State government and the income tax officers into thinking that the
new instrument is not a license for some time. The premium on licenses
will go up, specially when the shopping list contains a number of small
value items whose import is not viable except when clubbed together
over several licenses on which the major items have been utilised.
exporters holding Target Plus scrips can use their entitlements for
duty free imports for manufacture and simultaneously sell their Duty
Free Authorisations in the market at handsome premiums, specially where
the shopping list is subject to import restriction or anti dumping
duty. The window to encash the Target Plus is now open. Transferability
is back in a roundabout way. In sum, advance licenses will be
attractive once again.
Import restrictions back in a big way: There
are a number of restrictions on imports which are missing in the
minister’s speech. Import of aircraft for private use is subject to a
licensing procedure, only public service operators licensed by the DGCA
can import freely. For example, the import of second hand and retreaded
tyre is now restricted altogether, the earlier regime allowing import
of high value retreaded tyres has been withdrawn.
import is subject to a complex licensing procedure with a ceiling of
5,000 cu meters. Possibly, Indian sandalwood, otherwise considered
precious and rare and meant to be preserved does not like the smell of
competition even if it conserves a scarce resource.
hand capital goods were put on the free list in order to promote
industrialization and let the market forces work without artificial
restrictions. However, this time, a spoke has been put in their free
importability. The DGFT says that “re-manufactured” second hand
machinery is not freely importable. This means that the machinery
should not go through any change by way of reconditioning and
renovation in the foreign country before import.
condition is very difficult to observe in a practical sense, how does
the importer satisfy the suspicious customs inspector that the
machinery was not reconditioned before import. Is a declaration from
the foreign party at the exporting end adequate or should a chartered
engineer’s certificate be produced. In the absence of clarification
these points must be settled by the importer in protracted negotiations
with the customs each and every time a second hand machinery is
Metal scrap supplier registration procedures introduced:
The DGFT has laid out a complex procedure for registration of metal
scrap suppliers at the exporting end as a condition for import of metal
scrap to ensure that the supplies do not contain explosive material. As
many of 15 types of scrap ranging from steel and going on to copper,
brass, nickel, aluminium, zinc, tin and magnesium is covered in the
registration procedure. However, only scrap in loose form is covered,
shredded scrap is exempt from registration and can be freely imported
at all ports. The erstwhile system of inspection by so called
international agencies has been junked in favour of the new system.
registration will be required at the last link at the exporting end in
the chain of movement to India. Only LC cases are allowed, high sea
sale is prohibited, there must be a direct link between the supplier
and the importer. The DGFT says that the supplier registration will be
canceled in case of violation of the policy. The earlier inspection
based clearance system will operate simultaneously with the supplier
registration systems for another three months till 30 June after which
there will the new system alone will operate.
the inspection system was not working very smoothly and explosive
shells were being discovered during customs inspection in scrap
consignments even after certification by the recognized inspection
agencies. It was difficult to nail the source of the violation and also
punish the agency. In some cases, the importer could not get a suitable
agency to certify goods ready for shipment in far off locations.
is a moot point whether the present system will work. To begin with,
the importers supply sources will be limited due to the registration
procedure. Monopoly conditions will lead to further price rise in an
already overheated ferrous and non ferrous market. The action of
deregistration on errant suppliers may not detract the unscrupulous.
The exporting country and its official authorities must be made to take
responsibility for allowing shipments containing explosives. Only then
will be the system get some teeth. Till then, the experiments in policy
making will continue and the users in the steel plants and elsewhere
must bear the significant transaction cost of observing the import