Sector-wise rates not attractive for some

EXIM MATTERS

Many readers have raised queries in response to my last week's column on revamping the export promotion schemes. I answer some of the questions here.

One reader has asked how I can ask for continuation of the Duty Entitlement Passbook (DEPB) scheme, when the government has already said that the present scheme will be replaced by a new scheme in consultation with the exporters. My first response is that I have brought to the notice of readers the suggestions of Ramu Deora, the former Chief of Federation of India Exporters Organisation. The second response is that if you read the text of the column, the suggestion is to do away with all the duty exemption/remission schemes, other than duty drawback scheme and put in a new scheme, by whatever name it is called. The scheme that Deora suggests is simpler in the sense that the burden of duty and taxes and other disabilities that the exporters suffer will be reimbursed through a cash reimbursement, where a single rate of reimbursement for each sector will take the place of the present DEPB scheme of item-wise duty credit rates. This will lead to simplicity and have wider coverage. The transaction costs and scope for discretion and litigation will be reduced significantly.

Another reader has pointed out that the suggested scheme will not compensate some exporters fully and give subsidies to the others. I agree. Those with higher import content may not find sector-wise rates very attractive. For them the continuation of duty drawback scheme should take care of the problem. Regarding subsidy, the amount may not turn out to be much considering the lower peak rates of customs duty.

Will the scheme not lead to, say, export of our resources like iron ore, where little import content is there, asks another reader. Again, I agree. Any reimbursement scheme that seeks to prescribe a single rate across the board can encourage high value added (i.e. less imports value and high export value) products. It has its merits but the government can tackle any special problem through a small negative list.

Another reader has said that the reimbursement through banks at the time of realisation of export proceeds would mean that the working capital is blocked up for too long. Once again, I agree. The reimbursement may be given by the Customs at the time of exports, the way duty drawback is reimbursed at All Industry Rates. The essential point is that reimbursement must take place without need to submit fresh documents and without any transaction costs. The present schemes have evolved through a number of years. Should we jettison them and keep inventing new schemes that lead to unintended consequences, asks another reader. Deora, in fact, has been instrumental in evolution of many of the present schemes. Even so, Deora advocates a change because the times have changed. Many of the old schemes were appropriate when the customs duty rates were high and import restrictions were in place. With abolition of quantitative restrictions and the customs duties on most inputs at 10 per cent or less, there is very little warrant for maintaining complex schemes. Complex schemes do have their justification but the need of the hour is simplicity and lower transaction costs. Deora's suggestions address the need and are practical.

e-mail: tncr@sify.com