Commerce Ministry Backs Incentive Plan For Exporters.

The commerce ministry will approach the finance ministry with a proposal to create an incentive-based system to aid exporters after the Duty Entitlement Passbook (DEPB) scheme expires on 30 June. The finance ministry has announced that the DEPB scheme will not be given any further extension.

The DEPB programme helps exporters neutralize basic and special customs duties on the import content of products that are exported.

While lobbies such as the Federation of Indian Export Organisations are demanding either extending the scheme or hiking duty credit rates under the duty drawback scheme, the commerce ministry expects the finance ministry may not agree to a blanket increase of duty drawback rates.

“Rather than increasing duty drawback rates, it is more prudent to provide incentives to certain export segments with part of the revenue savings after DEPB expires,” a commerce ministry official said on condition of anonymity.

The finance ministry has estimated that the potential revenue foregone due to the DEPB scheme in 2011-12 is Rs.8,520 crore.

“We will demand that at least Rs.4,000-5,000 crore be provided to us to be used as incentives under a scheme like the Technology Upgradation Fund (TUF), which could provide long-term benefit to exporters,” the official said.

The TUF scheme for the textile and jute industries provides reimbursement on the interest charged on loans to fund technology upgradation.

Trade policy expert T.N.C. Rajagopalan said it is difficult to make sure the incentive provided by the commerce ministry will be used for technology upgradation by exporters.

Rajagopalan said withdrawal of the scheme will hit exporters. “They will have to make some adjustments,” he said.

However, he said, exporters should learn to live without too many incentives. “At the end of the day, export performance depends on one’s competitiveness and the international market scenario.”

Revenue secretary Sunil Mitra said last week that the expiry of the scheme will save some revenue for the government. “All exports will be zero-rated after DEPB scheme ends. Two similar schemes cannot go on,” Mitra said.

The PHD Chamber of Commerce and Industry, which covers 10 states, including Punjab, Haryana and Delhi, in a statement on Tuesday said it fears the withdrawal of the DEPB scheme will affect the competitiveness of exports, already facing stiff competition from countries such as China which have similar schemes providing higher incentives at 13-15%.

“Keeping in view the target of progressive increase in exports and the imperative need to remain globally competitive, the government should not withdraw the scheme unless some alternative export incentive/revised scheme is introduced before the existing DEPB scheme is withdrawn; otherwise, it will be difficult to sustain the growth impetus of the export sector,” it said.

The commerce ministry has targeted to double India’s exports to $500 billion by 2013-14. Exports grew 37.5% in the last fiscal to $245 billion.

While both—the DEPB and the duty drawback schemes—are similar, the first provides duty credit on basic and special customs duty on the passbook of the exporter, which can be used to pay duty on imported goods. The duty drawback scheme provides cash refunds to exporters. The DEPB scheme provides duty credit at a higher rate than the duty drawback scheme which is why exporters prefer the former.

The DEPB scheme, which covers around 6,000 items, is governed by the commerce ministry, while the duty drawback scheme, which includes around 2,600 items, is administered by the finance ministry. The DEPB scheme is also considered to be against World Trade Organization norms as it has a subsidy component.

Source : livemint.com