With the government earmarking just Rs.200 crore for marketing support to Indian exporters, the job of the head of the Federation of Indian Export Organisations (FIEO) is definitely not enviable. However, an unperturbed Ajay Sahai, Director General & CEO of FIEO, is going about doing his job with the determination that has to be seen to be believed. In an exclusive interview with The Dollar Business, Sahai talks about a host of issues pertaining to Indian exports and why the focus of the new policy should be on exports of services.

Jayashankar Menon | @TheDollarBiz

TDB: The central government is likely to turn down the industry’s demand to widen the scope of focused export schemes (FES) for pushing exports under Foreign Trade Policy 2014–19. In turn, it is exploring options that do not have fiscal implications and are compliant with WTO norms. What is your view on this? 

AS: The industry is asking for reviewing the scheme so that the products and/or the markets, which have done well in the past few years, may be taken out of the ambit of these benefits. This is because exporters have found a firm footing in such markets. We are also of the view that the government needs to bring countries with whom we have signed FTAs/CECA/CEPA within Focus Market Scheme or Market Linked Focus Scheme so that the advantage of ‘Zero Duty’ can be exploited with a more focussed approach. We are in agreement with the government to provide non-fiscal incentives aimed at reducing the transaction cost of exports which, as per government figures, work out between 8% and 10% of FOB value. If 50% of the cost is addressed, it can provide $12-15 billion support to the export sector without any cost to the exchequer.

TDB: Since both the Ministry of Commerce and Ministry of Finance are not in favour of additions to the FMS and FPS because of revenue implications, what is the way forward?

AS: Focus Market and Focus Product schemes have not been questioned so far under any of the countervailing action taken by any country against India. Therefore, we should not draw conclusions on our own. However, such schemes may not strictly test the parameters fixed by the Agreement on Subsidies and Countervailing Measures (ASCM). Nevertheless, India being in the list of Annex VII countries, can provide such support even though it may be termed as subsidy.

TDB: Expanding the Focus Product list by adding small items will obviously lose its relevance. If we include everything, it isn’t focussed either. What are the alternatives for the government to boost exports?

AS: For boosting exports, the government needs to look beyond conventional merchandise. However, the present support to merchandise exports should continue as they are important for employment generation as well. On a rough estimate, every $10 billion of exports generate one million jobs, though it varies from sector to sector.

TDB: Since the government is contemplating on restructuring the Foreign Trade Policy instead of focussing only on incentives, what will be the focus of the new Policy?

AS: The focus of the new policy should be on services exports, project exports, E-Commerce, merchandise trade, etc. We have treated services exports unfairly, which has to be provided a level-playing field such as interest subvention, exemption from service tax on Mode 2 of services and incremental export benefits on services exports to name a few. Similarly, a strategy needs to be drawn to support project exports, which promotes both merchandise and services. We have not yet exploited the potential of E-commerce, which can be a plank for new entrepreneurs in the field of exports. Certain procedural complexities need to be addressed to harness the potential of this sector.

TDB: With the Commerce and Industry Ministry firming up its mind to roll out the new FTP after Budget 2014-15 is presented this year, what major changes do you foresee?

AS: We expect the Union Budget to provide corpus for an aggressive Marketing Development Fund to support our exports. At present, the total marketing support available to the export sector is less than Rs.200 crore against an export of Rs.18,00,000 crore. The Budget should also encourage investment in manufacturing through removal of the threshold of Rs.100 crore for investment allowance. The new trade policy, besides providing framework for operation of these schemes, should also encourage bringing out new technologies in the exports sector.  

TDB: What will be the new or additional focus of the government, especially in connection with the issue of offering a slew of incentives under Focus Market Scheme, Focus Product Scheme and other such schemes?

AS: We feel that either these schemes will continue with some minor modifications or similar benefits might be extended in some other form. Most of these schemes have been in operation for a short span of just 4-5 years and therefore should continue with necessary fine-tuning.

TDB: Do you feel reward schemes like FMS and FPS that offer duty credit scrips, are the best way to promote exports?

AS: Reward schemes offset the disadvantages faced by the Indian exporters and make them competitive. High cost of inland freight, ground level transaction cost, rising cost of credit are some disadvantages faced by Indian exporters. The promotional schemes provide some cushion to absorb these costs. Had it not been for promotional schemes, many products would have become history.

TDB: How do our exports benefit when countries with whom we have FTAs, bilateral investment promotion and protection agreements and comprehensive economic alliance agreements, are brought under the Focus Market Scheme?

AS: Bringing such countries under the purview of FMS will help in exploiting the market and addressing the issue of rising trade deficit with some of the trading partners.

TDB: In March, India’s exports dipped 3.15% y-o-y to $29.58 billion but for FY2014, exports grew at 3.98% y-o-y to $312.36 billion. What is your forecast for the next fiscal?

AS: We have started FY2015 on a positive note with positive exports in April 2014 and a moderate trade deficit. With world trade expected to grow by 4.7% in CY2014 as against 2.1% in CY2013, we expect Indian exports to grow by at least 15% in FY2015. However, much will depend on the performance of manufacturing sector; if we achieve a 5% growth in manufacturing, we will surpass this target.