FM Rules Out Extension Of Export-Incentive Plan Beyond June 30.

Finance Minister Pranab Mukherjee has decided against extending a 14-year-old popular export incentive scheme called the duty entitlement passbook, a senior official privy to the development said. Mukherjee has written to Commerce Minister Anand Sharma saying the scheme will not run beyond June 30. The duty entitlement passbook allows exporters credit for import duty paid on inputs required for export production.

The scheme, meant to originally end in 2007, was extended over the years as the government was keen to encourage exports. But with India's exports in the last fiscal registering a 37.6% jump in dollar terms-the highest year-on-year growth-the finance ministry feels the case for extending the scheme has weakened . "Any further extension to the scheme is ruled out," the official said. "The finance ministry wants exporters to shift to duty drawback in place of duty entitlement passbook." Under the scheme, exporters receive duty-free scrips, or entitlements , which they can use to pay import duties.

The scrips are based on the value of goods exported and can be traded freely. The government fixes the rate of the incentive. The duty entitlement passbook is a favourite with exporters, but unpopular with the revenue officials who say the scheme allows double benefit to exporters instead of just neutralising all levies on inputs. The scrips are provided on the assumptions that all inputs are imported, but exporters are allowed to use up to 50% domestic inputs under the scheme.

Officials say exporters claim credit for the excise duty they pay on the domestic inputs while receiving duty-free scrips. The duty drawback scheme, on the other hand, neutralises levies paid on inputs and rates under it are fixed annually, based on the changes in the duty structure in the budget. Revenue officials say while drawback claims have declined after a reduction in import duties , duty entitlement claims have gone up, which indicates a possible abuse of the scheme.

Revenue foregone on account of duty drawback in 2010-11 is estimated to be . 8,520 crore as against . 8,028 crore in the previous year. The duty entitlement passbook is also not compatible with the World Trade Organisation (WTO) rules, but the finance ministry had in the past agreed to extend the scheme following intense lobbying by the commerce & industry ministry and the exporting community. Exporters, however, are demanding further extension of the duty entitlement passbook.

They say while growth has rebounded , recovery is still fragile in key markets for Indian goods, such as the US and Europe. "We want the scheme to be extended ," said Ajay Sahai, director general, Federation of Indian Export Organisations. "Also, the government should provide for a transitional arrangement for shift over to another scheme to exporters ."

Source : economictimes.indiatimes.com