Norms for export incentives stiffened

EXIM MATTERS

Last year, the commerce ministry announced that Status holders (ie recognised export houses, trading houses etc), who achieved a minimum annual export growth of 25 per cent (a minimum of Rs 25 crore) could earn Duty Free Import Entitlement Certificates up to 10 per cent of the incremental growth.

This direct export subsidy encouraged many Status holders to purchase export performance from others at a premium of 4 to 5 per cent, in order to achieve the requisite 25 per cent export growth. The government has now amended the relevant provisions in the Exim Policy, leaving most of them in a lurch.

The government now says exports made through a group company that has individually not achieved 25 per cent incremental growth, exports made by a non-Status holder through a Status holder (if individually they do not have 25 per cent incremental growth), exports made by one Status holder on behalf of another Status holder, services exports, deemed exports, re-exports of imported goods through transhipment, exports made by Export Oriented Units (EOU) etc. through Domestic Tariff Area (DTA) units and so on will not be taken into account for the grant of the certificate.

Moreover, the export of rough, uncut and semi-polished diamonds, gold, silver in any form, including plain jewellery, food grains sourced from the central pool maintained by FCI and items exported under free shipping bills will not be taken into account for reckoning the eligibility or entitlement.

Further, the incremental growth should not be transferred from one exporter to another and the government has reserved its right to put more restrictions.

Procedurally too there are new restrictions. The scheme is available to Status holders as on March 31, 2003. Others, who obtained the Status certificate after March 31, 2003 but on the basis of earlier performance, are not eligible.

Only those goods that have a 'nexus' with export products will be allowed for imports under the certificates. The goods imported against such entitlement certificates cannot be transferred and they have to be used by the status holder or his supporting manufacturer/job worker in proportion to the value of their direct contribution to the entitlement.

For getting the entitlement, the Status holders have to produce documents that show direct exports in their own name or the name of the supporting manufacturer.

The import of agriculture products will not be allowed under the license. Obviously, the government's intention is to encourage exports but not the manipulations that will enable Status holders to show the requisite incremental export growth.

The Status holders, who have bought export performance by paying hefty premiums, feel aggrieved and enraged that these clarifications have come after they have paid substantial money to buy export performances.

It is easier for smaller exporters but very difficult for large exporters to achieve 25 per cent incremental exports on their own, they say.

The saving grace in the amendments is the clarity that the entitlements of 10 per cent of incremental exports will be by way of duty credit.

This is a huge benefit for those who can get the duty-free certificates, as it amounts to a direct subsidy of 10 per cent for incremental exports. A similar subsidy is available for services exports.

The point for consideration is whether the rest of the taxpayers in the country must be made to pay the exporters a subsidy of 10 per cent to boost exports, especially when foreign exchange reserves are at an embarrassingly high level of over $100 billion.

Email: tncr@sify.com