Sops for exporters opposed

Finance ministry against provisions pertaining to forex earnings

Concessions granted to export-oriented units (EOUs) in the Foreign Trade Policy are under a cloud, with the finance ministry objecting to provisions pertaining to net foreign exchange earnings.

Finance Minister P Chidambaram has asked Commerce and Industry Minister Kamal Nath to withdraw certain concessions granted to EOUs in the policy, instead of asking the revenue department to notify these changes.

Senior government officials told Business Standard that the finance ministry was not in favour of continuation of Provision 6.5 in the chapter pertaining to EOUs.

This section says EOUs will be termed positive net foreign exchange earners if the these earnings calculated cumulatively in blocks of five years, starting from the date of commencement of production, is positive.

"As per the provision, even if in a year, an EOU does not undertake even a rupee worth of exports, but over five years his net foreign exchange earnings is positive, the benefits accrue to him. The provision also allows sales to units located in the domestic tariff areas (DTAs) to be counted towards his export earnings. As these are deemed exports they should not be considered a part of foreign exchange earnings," a finance ministry official said.

Officials said the finance ministry was also against the continuation of Clause 6.9 in the policy, which listed the types of supplies by EOUs to units in the DTAs that would be counted for fulfillment of a positive net foreign exchange earnings balance.

"The provisions are such that the same foreign exchange earnings can accrue to two units. For instance, if an exporter earns foreign exchange through exports and keeps the same in his Exchange Earners Foreign Currency (EEFC) account he can use the proceeds from this account to pay for supplies from a DTA unit. Such supplies are deemed to have been imported. Hence the same foreign exchange actually circulates between the two firms. This amounts to import substitution," an official said.

The Foreign Trade Policy, announced on August 31, contained several incentives for EOUs, including allowing them duty-free import of second-hand capital goods without any age limit.

Commerce and Industry Minister Kamal Nath said the policy would attempt to provide a level playing field to EOUs at par with units in special economic zones.

Already operationalisation of some of the key elements of the policy like target initiative, deemed export benefit and sops for farm exports have been stalled because of differences between the finance and commerce ministries.