'Focus is on ensuring exporters don't suffer'

FOREIGN TRADE POLICY/ Q&A: K T Chacko, Director-General of Foreign Trade

In an interview with Business Standard, Chacko said the implementation of the value-added tax had the potential to queer the pitch for exporters. Efforts were on to further reduce transaction costs and simplify procedures. Excerpts

What is the relevance of an annual foreign trade policy when most of the announcements involve issues that could be handled by issuing notifications?

You cannot announce a five-year foreign trade policy and not expect the changes made on an annual basis to be captured. The broad direction and framework will be that of the five-year policy, but within that, there is a need to take new measures to catch up with the requirements of the changing trade environment.

Problems crop up in sectors and they need to be addressed via policy changes, on a regular basis.

Why the delay in notifying the target plus scheme? It was announced last year.

Some concerns were expressed on the possibility of circular trading and potential for mischief in case of high value items. These had to be addressed.

But not notifying it earlier did not put people through inconvenience. It captures exports made till March 31 and can be used only after the data for the full year come in. So, it can be used only May onwards.

What is the position on the DEPB scheme?

Remission of incidence of indirect taxes and levies adds to overall competitiveness. DEPB will continue till it is replaced by another scheme. There will not be any vacuum. For now, it has been extended by another six months.

Sister departments may not agree on a new scheme within that time, but exporters should get a remission opportunity, with or without DEPB. We have been looking at alternatives to the DEPB scheme.

The DEPB is based on deemed import criteria and only captures Customs duty as a variable. This can also be captured through the drawback scheme, which is based on Customs and excise.

But there are other duties ""on electricity, diesel oil, petrol among others"" which will be there even when value added tax (VAT) is implemented. We have projected certain analyses and put together a draft scheme, which is currently being considered by different ministries.

On the abolition of cess on agriculture products and commodities, we have picked these items because they fall within the administrative purview of the commerce ministry.

But the principle of cess being abolished is something we are adhering to, whether legislation is administered by commerce or other departments.

How will the shift to VAT affect exports?

The white paper on VAT contains a clause saying that VAT incidence suffered in a state will be refunded to the exporter.

But, there is a problem, because if value addition was done in other states also, the refund will be available only on the last stage of value addition, leaving the VAT incidence in other states unrebated.

This needs to be addressed and a more scientific approach taken to the issue.

What is the plan on procedural simplifications and reduction of transaction costs?

We have merged three advance licence schemes which will reduce paper work. Also, the provision for annual advance licence was available only to exporters with a benchmark level of performance.

This has now been extended to exporters who have exported in the last three years. The committee on reduction of transaction costs, headed by the DGFT, had also said technology should be used to reduce transaction costs.

To that end, we are trying to develop an electronic data interchange (EDI) system with community partners like Customs, DGFT, health and sanitation governing departments among others. Six months down the line, we are looking at EDI compatibility so that documents do not have to travel between departments.

Another recommendation is that all departments with a role in exports and imports should come out with a timeframe within which the work shall be done.

In addition, a mechanism to oversee and monitor adherence to the timeframe has to be put in place. Delivery of service should be an objective enshrined in the annual report of each department. It should be a focused effort.