Despite the clear statement from the finance ministry ruling out an extension for the popular Duty Entitlement Pass Book Scheme (DEPB) beyond June 30, exporters are banking on fresh representations made by top industrial groups including the Tatas, Reliance Industries, Bajaj Auto and Bharat Forge to retain the scheme.
The scheme — which the finance ministry estimates drains about R8,000 crore per year — neutralises the impact of basic and special customs duties on the import content of exports. It works through the grant of a duty credit against the export product. For exporters, this means savings of 8-10% on the cost of their exports.
The finance ministry says DEPB is not WTO-compliant as it overcompensates exporters. It has instead suggested that exporters should rely on the duty drawback facility which does the same neutralisation, compensating them for domestic taxes paid.
But exporters claim the lower duty drawback rates under-compensate them as several domestic taxes are not captured in those rates. The finance ministry and even commerce ministry accept the contention, but claim that with the introduction of GST, those problems will be over.
Since GST is still a year away, the exporters have renewed their lobbying efforts with the finance ministry. The representation has got a fresh lease with the letter from industrial houses. Some of them have also met finance minister Pranab Mukherjee. Discontinuing DEPB will hurt export businesses substantially, the corporate bosses told the finance minister.
India’s exports rose 37.55% on a year-on-year basis to $245.86 billion during 2010-11, but the finance ministry is confident this will not be impacted negatively, if DEPB is withdrawn. Announcing the foreign policy for 2010, commerce minister Anand Sharma had said this will be the last extension for the scheme and asked exporters to be prepared for the switchover.
While export promotion councils and industry chambers have approached both the commerce and finance ministry to request an extension of DEPB, there has been no progress so far. However, commerce minister Anand Sharma said on the sidelines of the India-Africa forum held at Addis Ababa, Ethiopia that he will take up the issue with Pranab Mukherjee upon his return. “I am one who is not subscribing to this view that our exports have reached a stage where we can do away with some of the incentives... I am going to discuss DEPB and interest rates with the finance minister,” Sharma had said. Commerce ministry has already asked exporters to “keep their fingers crossed” on their demand for extending DEPB. Commerce secretary Rahul Khullar had recently made it clear that it will be up to the revenue department in the finance ministry to take the final call on the matter.
Recently, chairman of CII’s national committee on exports Sanjay Budhia had said that “exporters across different sectors are very disturbed... as nothing parallel (alternative) scheme is being given.” Even, the Federation of Indian Export Organisations (FIEO) has been against the discontinuation of the scheme and FIEO president Ramu Deora had said that a discontinuation will bring Indian exports below $200-billion.
Budhia was also of an opinion that exports, which grew sharply by over 37% in fiscal 2010-11, may not increase with the same pace in the current year as the India has to compete with China where cost of capital is far less with better infrastructure.