THE ANNUAL REPORT OF THE POWERLOOM DEVELOPMENT AND EXPORT PROMOTION COUNCIL [PDEXCIL]

FOR THE FINANCIAL YEAR 2001-2002.

At the time of preparation of the Annual Report for the year under review, the figures of exports of powerloom cotton fabrics and made-ups as compiled from the DGCIS statistics was Rs. 33,096.87 millions for the period April 2001 to January 2002. Proportionately, it is estimated that the exports of powerloom cotton fabrics and made-ups for the full financial year April 2001 to March 2002 shall be to the tune of Rs. 39,716.24 millions. The exports of powerloom cotton fabrics and made-ups for the financial year 2000-2001 was Rs. 43,352.57 millions. Thus it is estimated that for the year under review, there shall be a negative growth rate to the tune of approximately 8.39% over the previous financial year 2000-2001. The exports of powerloom cotton fabrics and made-ups for the year under review (2001-2002) must be viewed against the backdrop of certain external development and domestic constraints, for all the products in general, having a critical bearing thereon.

2. The robust expansion in global economic activity witnessed in 2000 was followed by a marked slowdown in 2001. The Buoyant economic conditions and higher growth in global output in the year 2000 were attributable to sustained market expansion in the United States, modest revival in the Euro area, sharp pick-up in the newly industralised Asian economies and strong growth performance by developing Asia and transition economies. In contrast, the scenario for the year 2001 is subdued. The downturn in the US economy has been formally declared as a recession. Japan is likely to experience its fourth economic recession of the last decade. Economic activity has also considerably dampened in the Euro area. With signs of revival absent in the G-3 and almost everywhere else in the world, the global slowdown has assumed a synchronized, self-reinforcing dimension. The synchronicity of the current slowdown is the most marked in the last two decades.

3. The terrorist attacks in the United States on 11th September 2001 and subsequent retaliation by the United States in Afghanistan have further dampened the short-term prospects for global recovery. Regional growth projections have been further moderated in the aftermath of the attacks. The intensity of the setback to global recovery will depend upon the magnitude of the damage inflicted upon consumer sentiment, business confidence and risk perceptions, particularly, in the emerging and low income countries.

4. World imports in 2001 so far have also remained sluggish with all the major countries like USA, Japan UK and Germany witnessing a contraction in their import demand following in the slowdown in world economy. Such a synchronized decline in import demand from major destination countries has made the trade outlook more bleak and is likely to impact our export growth in the current financial year.

5. The exchange rate of the rupee remained broadly stable, appreciating only marginally, in real effective terms during 2000-01, depreciating in nominal terms by about 5.1 percent against the US Dollar but strengthening against other major currencies. The appreciation of the Rupee in real effective exchange terms has, however, picked up in the year 2001-2002 affecting the competitiveness of our exports. The downward movement in the nominal value of the rupee in the recent past has been only modest compared to some of the East Asian currencies. The cumulative depreciation of the Rupee since March 2000 has been of the order of 9.2 per cent upto November 2001 as compared to a depreciation of 29.4 per cent for the Indonesian Rupiah, 22.3 per cent for the Philippines Peso, 14.7 per cent for the Thailand Baht, 13.0 per cent for the Korean won and 11.4 per cent for the Singapore Dollar. The Malaysian Ringgit and the Chinese Yuan were stable during this period. Such a comparison of currency movements in the recent past would seem to indicate that our exports continue to be adversely impacted from a price competitiveness point of view.

6. Exports of developing countries like India continue to be threatened by the emerging protectionist sentiments in some sectors in the guise of technical standards, environmental and social concerns. Non trade barriers like anti-dumping duties, countervailing duties, safeguard measures and sanitary and phytosanitary measures have affected market access for exports from the developing countries.Market access is also affected by the tariff differential in imports by the developed countries, with average tariff on developing countries imports being higher than on imports from the developed countries.

7. Trade policy reforms over the last decade have aimed at creating an environment for achieving rapid increase in exports, raising India's share in world exports and making exports an engine for achieving higher economic growth. The focus of these reforms have been on liberalization, openness, transparency and globalisation with a basic thrust on outward orientation focusing on export promotion activity, moving away from quantitative restrictions and improving competitiveness of Indian industry to meet global market requirements. Over the years, significant changes in the EXIM policy have helped to strengthen the export production base, remove procedural irritants, facilitate input availability besides focusing on quality and technological upgradation and improving competitiveness. Steps have also been taken to promote exports through multilateral and bilateral initiatives, identification of thrust areas and focus regions. Government have already set up a High Level Committee for formulating EXIM Policy for the next five years for the ongoing medium term policy 1997-2002. Highlights of various trade policy measures announced by the Government in the recent past are given below:

I. Measures announced in the Union Budget 2001-02

 Discontinuation of surcharge of 10 per cent on customs duties. With this, the peak level of customs duties would decline marginally from 38.5 per cent to 35 per cent. The customs Tariff would further be brought down to the East Asian level progressively within three years reducing the number of rates to the minimum with a peak rate of 20 per cent.

Partial back loading of withdrawal of tax benefits to exporters under 80-HHC of the Income Tax Act. Percentage of export profits to be taxed in 2001-02 reduced from 40 per cent to 30 per cent and fixed at 50 per cent, 70 per cent and 100 per cent in subsequent years as against 60 per cent, 80 per cent and 100 per cent envisaged earlier.

Extension of the concessions available for infrastructure by way of 10-year tax holiday to the developers of Special Economic Zones (SEZs) on the same lines as developers of industrial parks.

For greater procedural and administrative efficiency, a new manual of Procedure on Central Excise and Customs would be brought out with emphasis on simplicity, brevity and transparency and making them more user friendly.

II. Measures announced in the Annual EXIM Policy 2001

The EXIM Policy has completed the process of removal of QRs on BOP grounds by dismantling restrictions on the remaining 715 items. However, necessary defensive mechanisms have been put in place to provide level playing field to domestic players vis-à-vis imports.

Introduction of a Market Access Initiative (MAI) scheme to boost exports. The scheme intends to promote select Indian products and brands in the international market based on a "country-product focus" in partnership with the industry.

The scheme of Special Economic Zones (SEZs) has been liberalized further by granting permission to SEZ developers for duty free import/procurement from DTA, to sell goods in the DTA in accordance with the import duty in force, for subcontracting a part of production abroad, to bring back their export proceeds in 365 days (as against normal period of 180 days) and to retain 100 per cent of the proceeds in the EEFC account and introducing measures such as no requirement of licence for setting up units in these zones for items reserved for SSI and granting of infrastructure status, under the Income Tax Act, to SEZ developer.

The Export Promotion Capital Goods Scheme (EPCG) has been further strengthened by permitting import of jigs, fixtures, dies, moulds for the full CIF value of the licence (instead of 20 per cent earlier), extension of the facility to the licence holder to submit either a consolidated statement signed by the banks or separate statements signed by individual banks, extension in export obligation for licences issued during 1990-96 upto 31.03.2002 and for a period of two years for licences issued in 1997 and 2000, no penalty for value-wise shortfall (except for the customs duty together with interest), extension of facility for partial fulfillment to reduce transaction time and time limit of 180 days prescribed for finalisation of nexus by EPCG Committee failing which the nexus applied by the applicant becomes final.

Annual Advance Licence scheme liberalized, including measures like extension of this facility to deemed exports and intermediate supplies, enhancement of the entitlement from 125 per cent to 200 per cent of the FOB value of preceding year exports and extension of the licence to other than Standard Input Output Norms exports. Modifications in the Advance Licence Scheme include increased entitlement of the licence, additional facility beyond this entitlement as well against execution of bank guarantee, dispensing with the need of technical characteristics for inputs (except for items in the sensitive list), revalidation of expired Advance Licences, where export obligation has been completed, by six months and duty free import/procurement of fuel allowed under Standard Input Output Norms for sectors where the same cost more than 10 per cent of the manufacturing cost.

Duty Free Replenishment Certificate (DFRC) Scheme simplified. Important simplifications include extension of validity of DFRC from 12 months to 18 months, dispensing with the need of technical characteristics for inputs (except for items in a small negative list), automatic calculation of CIF value under the scheme without reference to international price on individual inputs and coverage of additional ports under the scheme.

Additional benefits to EOU/EPZ/EHTP/STP Units include rationalization of NFEP/EP norms, supplies made by the trading units to the bonded warehouses to be treated as exports for the purpose of domestic sales entitlement, subcontracting of production abroad permitted, simplification of procedures regarding utilization of goods and greater delegation to Development Commissioners to approve EOU/EPZ projects.

Other measures announced in the EXIM policy 2001 included free import of second hand capital goods up to 10 years old, extension of the facility of electronic filing of applications to 29 out of 31 offices and to all categories of licences and introduction of facility of offline filing. Further simplification of procedures include minimizing the interface with DGFT by reducing the number of committees from 9 to 4 and streamlining others.

III. Other Measures

Declaration of China, Russia and 14 other countries (Vietnam, Mongolia, CIS countries) as Non market economies to help Government assess the cost of exports from these economies and import duties on real costs. In case the input costs of exports from these countries are not in line with market realities, counter measures could be taken to neutralize the same, thus facilitating a prompt and effective anti-dumping and safeguard action on such exports.

Rationalization of interest rates on export credit by indicating interest rates on export credit by indicating interest rates on export credit as PLR linked ceiling rates (as against specific rates) in respect of all categories of credit. Prescription of such ceiling on export credit will help in lowering interest rates charged by the banks for export credit. Further, interest rate on export credit was cut by one percentage point across board in September, 2001 to provide export credit at competitive rates.

A medium term export strategy was unveiled by the Government to provide a quantum jump to exports in the next five years. The strategy, which would be co-terminus with the 10th Five Year Plan period, provides a mix of macro policies and sector specific policies, indicating attainable goals with appropriate checkpoints.

8. On the domestic front, infrastructure bottlenecks such as poor port facilities, woeful road conditions, inadequate and irregular power supply, less-than satisfactory telecommunication systems, etc., high transaction costs, labour inflexibility, etc. have had an adverse bearing on export production and promotion, apart from the other problems in the areas of export policies and procedures, indirect taxes and other local taxes & banking & fiscal issues. Despite tremendous potential, the lack of long term policies continue to hinder exports.