FM May Not Extend DEPB, Auto Sector Worried.

Finance Minister Pranab Mukherjee thinks it is time to end an export incentive scheme that's been running for 14 years, the Duty Entitlement Passbook or DEPB. The scheme saw exporters get entitlements which could be used to offset a part of the burden of import duty paid on parts or materials used for the manufacture of their export oriented products.

As a result of this decision, the auto makers would be the worst hit, so the industry is pretty worried.

The DEPB or Duty Entitlement Passbook scheme has been the reason why Indian exports - especially in the two wheeler space have been soaring over the past few years. TVS, Bajaj and even others like Honda 2 wheelers Hyundai and Maruti Suzuki have benefitted as the scheme allowed their products to be more competitive globally and yet afford them decent margins.

The big worry is that if the export incentives are removed this growth trajectory could be slowed. And worse it is an opportunity that China – where exports are heavily incentivised – would be quick to capitalize. Chinese auto exports grew only 3 per cent last year but a slowdown of Indian exports could see that number increase.

"If India is to compete with the competitors like China where the equivalent of DEPB scheme is as high 13 to 15 where as compared to India’s 8%, then it will be completely counterproductive and suicidal to do anything disruptive with it," said Rajiv Bajaj, MD of Bajaj Auto.

"We feel that export benefit shouldn’t be withdrawn at all," said HS Goindi, president-marketing at TVS Motor Co.

There has still been no final official communication from the Finance Ministry and so manufacturers hope that another extension of the scheme may still be possible.

"The DEPB scheme accounts for 25 per cent of total exports. We expect the government to extend DEPB scheme further," said Ajay Sahay, Director General of FIEO.

It is certainly going to be a tense wait for the two-wheeler makers who have recently invested big money into growing their exports by increasing marketing spends and expanding capacity.

Source : profit.ndtv.com