For exporters, 2011 started on a cheerful note but is coming to an end on a rather sombre note. During most of the year, exports rose significantly. But operating costs also rose significantly in the domestic economy, eroding the competitiveness of many exporters, who found it difficult to sustain the growth momentum.
Towards the year-end, the weakening rupee somewhat compensated for higher costs. But anxieties regarding how well the global economy will perform in the coming year has moderated expectations.
The most significant policy decision during the year was the abolition of the Duty Entitlement Passbook (DEPB) scheme. In 2001, the then Commerce Minister announced the end of the scheme by 2002. But the scheme survived for 10 more years due to unrelenting demand of exporters to continue the scheme. But the worsening fiscal deficit and firmness of the present Finance Minister put an end to this very popular scheme.
To quite an extent, the vastly expanded All Industry Rate (AIR) of Duty Drawback has helped the Government placate the aggrieved exporters.
The Commerce Ministry tried to provide a stable policy environment by continuing most of the schemes, encouraging exports by expanding the coverage of various duty credit schemes and selectively enhancing entitlements. The ministry continued negotiating more trade agreements to enhance preferential access to new markets. Some of the recommendations of the Task Force for Reduction in Transaction costs were implemented and some, though not significant, progress was made in strengthening trade-related infrastructure.
Ministry’s move
The Finance Ministry ended the income-tax exemption for Export-Oriented Units and the exemption from Minimum Alternate Tax for Special Economic Zone (SEZ) units and developers. SEZ developers were also subject to Dividend Distribution Tax.
The exemption from service tax on services provided to SEZ that have no operations in Domestic Tariff Area (DTA) and on services that fulfil the conditions under the Export of Services Rules somewhat relieved the units concerned from the pain of claiming refund and waiting endlessly. But other exporters continued to suffer from uncertainties and delays in getting the refunds of service tax and refunds of unutilised Cenvat Credit.
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The euphoria in setting up SEZs has ended and the Commerce Ministry is desperately trying to dilute many conditions govering setting up SEZs and transfering of ownership. The ministry suffered a loss of credibility by first reporting high export figures and then admitting that exports were overstated by almost 5 per cent. Even now, many analysts doubt the export figures that are being reported by the Commerce Ministry.
The Finance Ministry introduced self-assessment scheme in Customs Law and a post-clearance on-site audit scheme. Many importers are anxious that the responsibility for correct declarations has now been shifted to them. The Central Board of Excise and Customs (CBEC) introduced the Authorised Economic Operators scheme and initiated moves to appoint an ombudsman for indirect tax matters. Advance Ruling was extended to domestic Public Limited Companies also.
As this year ends, exporters, importers and customs house agents must take note of the amendments to the First Schedule to the Customs Tariff in certain Chapters that will take effect from January 1, so that they give correct classification in shipping bills and bills of entry.