Making a statement in the Lok Sabha, commerce minister Ramakrishna Hegde said that in view of the "extremely disappointing" export performance, he had finalised the package after wide-ranging discussions with the finance minister.

The cut in interest rates will be effective till March 31, 1999, as a special temporary promotional measure. Domestic traders have for long sought parity with global exporters in credit rates. The Reserve Bank did announce a 6.5 per cent interest rate earlier this year for incremental exports, but had to withdraw it in the face of criticism from industry that in a recession-hit global market, it would be virtually impossible for any sector to recordincremental exports.

The government will also pay an interest on its dues to exporters starting September 1. Under the duty-drawback scheme, the interest will be payable on delays of over two months from the date of the shipping bill, while in the case of refund of terminal duties, the two months will be counted from the date of payment of duty. However, the necessary papers will have to be filed by the exporter within 15 days of executing the export.

Manufacturer-exporters with a record of specified export performance and above one year of unblemished export record will be permitted the facility of legal undertaking, subject to prescribed terms and conditions instead of bank guarantee to the customs as security for import of duty-free raw materials.

Exporters permitted to give bonds to excise and customs bond officers will not be required to give separate bonds for fulfilment of different obligations but only a single mother bond on an annual basis, which will subsume all the bonds required to be givenfor various purposes.

The minister said exporters had been representing that procedural difficulties and erosion of competitiveness were the major reasons for the slowdown in export growth in some sectors.

In a boost to the software sector, which has recorded a 35 per cent growth last year, the government has also decided to extend the export promotion capital goods scheme to software technology parks. The exports of the member-companies will be treated as the export obligation of the park itself.

The package has also mentioned a special package for electronics hardware exports, which alone recorded a fall of 60 per cent last year.

Exporters who are qualified to give bonds to excise and customs bond officers will henceforth have to furnish a single mother bond valid for a year to fulfil all obligations instead of the current practice of furnishing bonds for every transaction. This is expected to cut down procedures that often delay exports.

Responding to the demands of export-oriented units, thegovernment has decided that the tax holiday for all such units, including those in the export processing zones would be increased from five years to 10 years. In addition, EOUs will be permitted sub-contracting facility in the domestic tariff area.

In an effort to broadbase exports to high technology sectors, the government has announced that bio-technology industries and small-scale engineering units will henceforth be entitled to the benefit of zero duty EPCG with a threshold of Rs 1 crore.

The duty on mobile cooling equipment and other cold-chain equipment will be reduced to give a boost to the floriculture, agriculture and food processing sectors which now suffer losses from the lack of such infrastructural facilities.

According to official estimates, nearly two-thirds of all export items have reported positive growth while about 30 major export items constituting around 25 to 30 per cent of the export basket, have shown substantial fall.

While cotton yarn and fabrics exports fell 20 per cent,man-made fabrics fell 35 per cent and transport equipment by about 20 per cent.

Earlier, the minister expressed concern that exports were down eight per cent in dollar terms as compared to the value of exports during the corresponding period of last year. The trade deficit had widened to $ 2100 million during the first quarter as against $1400 million.

An analysis of the preliminary data, he said, showed that while nearby two-thirds of export items had reported positive growth, 30 major items constituting around 25 to 30 per cent of the country's export basket had shown a substantial decline.

The reasons for the poor performance, Hegde said, could be attributed partly to the difficult economic situation in some of the south-east Asian countries. Exports to Indonesia, Thailand, Singapore, South Korea besides Japan had shown a substantial fall, he said.

INSIGHT

Sops instead of strategy

The package to reverse the 8 per cent fall in exports in the first quarter follows the failed Eximpolicy, which last April had promised an export growth of 20 per cent this year. The key element of Wednesday's package is a reduction by 200 basis points in the interest rate on export credit. The temporary concession, to end at the close of the current fiscal, is a mitigatory measure.

Some procedures have been eased. This is as it should be. But the special package lacks drive. It does not address the problem of loss of competitiveness, reflected in the fall in exports (in the first quarter) of readymade garments manmade fabrics by 35 per cent, transport equipment (trucks, cars, two-wheelers) by 20 per cent and hardware electronics by 60 per cent. The package shows that neither Hegde nor Sinha has any clue on how to go about reducing the quarterly trade deficit of $2,100 million, up 50 per cent from the first quarter of last year.