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Exim Newsletter,June 12, 2012
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CEO's Note
FTP: Need to continue positive efforts
The Foreign Trade Policy (FTP) supplement has been released, the postmortem is over, and I think even the toughest critics will agree that exports will get a major boost from the range of measures introduced. The Commerce Minister deserves credit for this. Such support was much needed in the context of the global economic uncertainties looming over the Indian export sector.

The highlight of the FTP measures is certainly the continuation and expansion of the two percent Interest Subvention scheme and the duty-free Export Promotion Capital Goods (EPCG) scheme. In addition, enhanced focus on export diversification through expansion of schemes like FMS, Special FMS, FPS, MLFPS, and thrust for manufacturing by enlarging the scope of tax benefits on imported inputs to include goods sourced locally -- all these moves are certainly better than what we all expected.

We can't thank the Commerce Minister enough for the export-friendly FTP, but I think there is still ample scope to revitalize our exports in the coming days, particularly when it comes to some big-ticket reforms required to boost the sector.

First of all -- as I have always advocated -- we should push export diversification further not only to mitigate the risks of our over-dependence on traditional export markets but also to ensure future growth of the sector. Of late, there has been a significant increase in our exports to non-traditional markets. For example, exports to Asia, Africa and Latin America last year amounted to US$ 188 billion, which is 62 percent of the nation's total export basket. However, I see no reason for being complacent about this.

At present, our trade with the 10-nation ASEAN region accounts only 9.6 percent of the total trade. These countries offer tremendous opportunities and we must bank on these new markets. Similarly, we need to foster our trade with the SAARC member nations. Here what we need, besides efforts to push bilateral trade ties, is better connectivity. India shares land borders with four of the SAARC members and a sea border with two -- a benefit that can prove crucial if the opportunity is realized.

Transaction cost and infrastructure are other areas where reforms are needed. Over the last few years, the Centre has taken some initiatives to reduce the export transaction costs, but still our exporters have to suffer transaction cost about 8 percent to 10 percent of the value of exports. As far as infrastructure is concerned, adequate roads, ports and railways are desperately needed, and I hope the prime minister's recent bold-talk about Rs 2 lakh crore infrastructure investment won't remain just talk.

And finally, the government needs to act fast to correct the fundamentals of the overall economy. The recent FTP measures would definitely give a boost to Indian exports to weather the global uncertainties, but at the same time the sector also needs a better economic environment at home, particularly keeping in view the ambitious target of US$ 500 billion we have set to achieve by 2013-14.
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