Export body chief pitches for higher drawback rates as promotion scheme draws to close

The Commerce Secretary, Dr Rahul Khullar's recent contention that the country might not be able to sustain the 40 plus per cent export growth for the rest of the fiscal in the face of continued wobbly recovery of India's traditional overseas markets such as the US and Europe has an obverse side.

As the 14-year old popular export promotion scheme, Duty Entitlement Passbook (DEPB), designed to neutralise input duty incurred by exporters in their manufacturing activity, draws to a close, exporters are restive that the alternative scheme, with the existing duty drawback scheme, would not be adequate to factor in other multiple levies manufacturer-exporters now suffer from.

The high-powered Drawback Committee Chaired by the Prime Minister Economic Advisory Council (PMEAC) Member, Dr Saumitra Chaudhari, held its deliberations here on Tuesday to elicit the views of stakeholders.

The Federation of Indian Export Organisations (FIEO) President, Mr Ramu S. Deora, was in the Capital to brief the committee and Business Line spoke to him on the challenging phase the exporters confront particularly in working under constraints such as high transaction cost, higher interest cost and perpetual infrastructural hurdles.

As every exporter is “scared that the proposed drawback rate would be far lower than the DEPB rate with the prospects of the third and fourth quarters' exports of the current fiscal most likely to be in decline,” Mr Deora pitched for reasonably better drawback rates to legions of small and medium exporters.

These exporters are finding their export cost soaring with their competitors enjoying several advantages even in new markets in Asia in general and China in particular.

Mr Deora was sceptical about sustaining the frenetic pace of export growth stating that “present shipment is 9-10 per cent more than normal as exporters seek to avail themselves of the DEPB benefits before they go. With labour cost being up from Rs 120 to Rs 350 per day in the export industry, do not scrap the DEPB at one stroke.”

Excerpts from the interview:

Would you amplify the apprehensions of the exporting community on the phase-out of the DEPB scheme and what in your view should be viable alternatives?

I was the early beneficiary of the DEPB scheme since its inception in 1997 when the then Finance Minister, Mr P. Chidamabaram, introduced it. We all supported it because the new scheme was able to neutralise not only the customs duty but also the customs duty equivalent embedded in the price of domestically procured inputs. Small and medium exporters found it was easy to use as it obviated the need for maintaining detailed accounts, besides recognising the cost disabilities suffered by exporters due to un-neutralised indirect taxes and high transaction cost that eroded their competitiveness.

As both DEPB and Drawback are countervailable at the WTO, under Article 27.2 of the ASCM (Agreement on Subsidies and Countervailing Measures) Annex VII countries can maintain export subsidies of this kind, subject to certain conditions, India is expected to move out of Annex VII when its annual per capita income crosses $1000.

Even as duty credit or revenue foregone under DEPB went up from Rs 5,884 crore in 2009 out of f.o.b. value of exports of Rs 1,19,920 crore to Rs 6,656 crore in 2010 out of f.o.b. value of exports of Rs 1,44,383 crore in 2010, the average rate of DEPB had fallen from 4.9 per cent to 4.6 per cent in 2010.

Although precise correlation is not possible, exporters are concerned that the product coverage under both the schemes shows a disturbing chasm. While 611 engineering products are covered under DEPB, the drawback rates are covered for only 470 engineering products. In chemicals, 1,030 items get covered under DEPB versus 987 under drawback.

Again rate-wise, DEPB averages 7-8 per cent for textiles or mostly 6 per cent for engineering, pharmaceuticals, leather, electronics, the corresponding rates under drawback are hardly 1-3 per cent for most products, save for sport goods and handicrafts.

Many exporters do not avail themselves of duty drawback due to very meagre value caps which discourage value additions.

Against the several plus points of the DEPB scheme, exporters need to be compensated for multiple indirect levies and taxes slapped on them by States and semi-government bodies.

Hence the proposed drawback rates must factor in additional 2-5 per cent. Alongside, there should be new optional scheme for units with export turnover above Rs 25 crore by providing them refund of basic customs duty through Cenvat for inputs used in exports.

The scheme is foolproof with little chance of leakage of revenue and would be on actual basis of what the exporter paid on the inputs by import or through domestic sourcing.

Ultimately, I told the panel to work out the new drawback rate but in addition extend 2 to 5 per cent sector to sector to cushion them against several shortcomings.


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