BOMBAY, 2 February 2004 — Election time is happy times for India Inc. Doling out sops in a bid to increase its vote bank, the government is making its utmost efforts to bring cheer to corporate India.

Finance Minister Jaswant Sing, recently, turned Santa Claus with his bag of goodies in a mini-budget. Then it was the turn of Commerce and Industry Minister Arun Jaitley. His “gift” was in the form of mini-exim policy.

Arun Jaitley has also attempted to extend the feel-good factor to the export community. His bag of goodies sought to simplify the export incentive schemes, reduce transaction costs and ease import restrictions on major sectors like automobiles, steel, textiles and food intermediaries. Jaitley also put gold and silver on the free import list.

Announcing the policy, Jaitley allowed imports of all kinds of capital goods including office and professional equipment under duty free entitlement scheme.

But imports of agriculture and dairy products and cars will continue to be banned. Heritage hotels, I and II star hotels and stand-alone restaurants have also been extended the benefits of duty-free import now admissible to the tourism sector. The sops to hotels and restaurants are aimed at making India an attractive tourist destination. While hotels can import free goods up to 5 percent of their foreign exchange earnings, other service providers like travel agents can now import office equipment and capital goods up to 10 per cent of their forex earnings.

Similarly, removal of quantitative restrictions on gold and silver, which till now could be imported only through notified agencies like MMTC, would help in making India a global jewelry export hub. Free import of gold means that the 400-ton gap between actual gold consumption and official gold import, which is currently met by informal export, will narrow. Gold supply for retail demand will improve to bring down the price to near international level.

Keeping in tune with the strides made in the information technology sector by India, Jaitley launched electronic fund transfer for transactions like duty drawback and payment of duty. He has also taken steps to encourage exporters to go for online licenses with digital signature of the directorate general of foreign trade. The electronic data interchange system connecting 33 key ports is also being put to full use by connecting various agencies like customs, airlines, clearing agents, banks and the Container Corporation. The government has brought old EPCG licenses on a par with those issued this fiscal. The export obligations of old licenses have been refixed at eight times the duty saved instead of five times the cost insurance freight (CIF) value. Corporates an also now fulfill their obligation by exporting products and services of group companies. They can club EPCG licenses and use rupee payments made for port handling services to meet their export commitments.

Also, corporates would not be required to export the original products in the balance obligation period if they are unable to. They can export goods and services of group companies to fulfill their obligation. Companies which are sick or under the Board for Industrial and Financial Reconstruction (BIF) have also been allowed to extend their export obligation period.

There has also been an ease in the homologation norms for automobiles costing over $40,000 on CIF basis. Further, restrictions on import of prototypes have been eliminated for research ad development purposes by actual users. In layman terms, this means that luxury carmakers and their importers in India will now be able to bring in cars without homologation hassles. There will now be easier entry norms for premium carmakers like BMW, Audi and Nissan, all of whom are slated to import and sell their models in India.

Also, people importing cars under the transfer of residence permit will now be able to bring in their vehicles after two years without homologation as long as the car is more than a year old. The government has also decided to extend the deemed export benefit for items with zero customs duty. Analysts say that with this move, India could well export up to 5 lakh tons of urea this year. The actual immediate gainers are expected to be some few low-cost producers like Tata Chemicals, Indo Gulf, NFL and RCF. The biggest opportunities are estimated to be in the Southeast Asian countries, where freight savings will be an added advantage.

The deemed export facilities have also been made available to fertilizer and refinery projects that have spilled over from the 8th and the 9th Plan period. This would benefit at least three major grassroots refineries — IOC’s Paradip refinery, BPCL’s Bathinda refinery and HPCL’s Bina refinery.

In addition, the equity base of Export Credit Guarantee Corporation has been hiked by Rs.300 crore to Rs.800 crore with a view to help it underwrite higher risks for project exporters in countries like Afghanistan, Iraq and some African nations with high political risk.

The government has also raised the ceiling on export of gifts like calendars, dairies, etc from Rs.1 lakh to Rs.5 lakh.

Overall, the Mini-Exim Policy holds out promise for cheaper export credit and better insurance coverage for India Inc, to held it compete better in the international market for major projects. The Mini Exim Policy has tried to liberalize imports and has attempted to cut red tape in a big way. Ranging from food products to textiles and automobiles, a number of sectors will now have easier access to imports.