The five-year Exim Policy 1997-2002 is due to expire this year and a new policy will be announced on the March 31, 2002. Perhaps, this is the right time to ask whether the Directorate General of Foreign Trade (DGFT) deserves to survive in its present form.
The role of DGFT is to advice on Exim Policy formulation and to implement the policy. With quantitative restrictions abolished, the DGFT has little role in grant of licences to import but uses its powers to impose non-tariff barriers on imported goods such as mandatory compliance with domestic quality standards, labeling and ecological requirements, restrictions on the grounds of safety, security etc. The DGFT will have to continue playing this important role in future also.
The DGFT plays a critical role in formulating export promotion schemes. Usually, these schemes involve issue of import licenses to enable the exporter avail duty exemption on imported goods.
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Its 32 regional licensing authorities (RLAs) issue the licences and monitor fulfillment of export obligation. Schemes involving refund of taxes on deemed exports are also framed by the DGFT and administered through the RLAs and development commissioners.
In respect of the schemes involving duty exemption, the production of import licence is only a requirement for availing the benefit of the Customs exemption notification. The abolition of this condition by the Customs can straightaway make the DGFT redundant. That is quite feasible, because most of the licences are issued on the basis of notified norms.
The Customs can very well use the standard norms to extend the duty concession. No doubt, the DGFT might still continue to facilitate cases that are not covered by notified norms but that can be only at the headquarters. There need be no role for the RLAs in the matter.
For example, the duty entitlement pass book (DEPB) scheme involves nothing but credit, debit and transfer of the duty amount - such as a savings bank passbook. The Customs can easily do that.
Even under the advance license scheme, the Customs maintain their own records of imports and exports and accept or redeem bonds or bank guarantees. They can very well do so without the advance licence scrip that is issued by the DGFT.
The deemed exports benefits involve only duty refunds. That scheme can also be easily made redundant through Central Excise exemption notifications. The other functions of the DGFT such as export house recognition etc. are not too consequential, in any case.
In short, there is a great opportunity to liberate the exporters from the hazards of dual control for the same purpose and thus reduce the transaction costs significantly. However, this is unlikely to happen for several reasons.
Firstly, the commerce minister might like to retain his empire of babus and give them some work. The Customs do not want them, any way.
Secondly, the Customs and Excise officials are much too revenue oriented. The exporters do not trust them to act in the interest of export promotion.
Thirdly, the DGFT does resolve quite a few practical issues where the Customs take a rigid stand. Exporters do benefit through such interventions and do look to the DGFT to act as a check on too much arbitrariness by the Customs.
So, it appears that the DGFT will survive even if that means higher transaction costs for the exporters.