DEPB scheme on till alternative is found

FOCUS WTO

The Duty Entitlement Passbook scheme (DEPB), which has been challenged at the World Trade Organisation (WTO) by the European Union (EU) and other member countries, will continue till an alternative is worked out.

The Foreign Trade Policy has, however, decided to keep the DEPB rates unchanged, an exercise usually adopted in the Exim Policy. The government has also decided to continue with DEPB for textiles and steel products. While it was argued that the duty neutralisation for textiles should be done away with since they had been brought out of the Cenvat chain, suspension of DEPB would have made exports of steel less attractive.

The textiles ministry and the commerce department wanted the DEPB to be applicable in the wake of removal of export quotas from 2005. Besides, duties on certain steel products had been reduced but the rates have not been adjusted accordingly.

The finance ministry had been pressing for the withdrawal of the scheme on the grounds that it was WTO-incompatible. As an alternative it had sought replacing or merging DEPB with the duty drawback scheme.

The commerce department however decided to continue with the scheme since it covered 52 per cent of India's exports and is easy to administer. The commerce department had earlier proposed to terminate the scheme from April 2005.

The expert committee headed by former commerce secretary P P Prabhu had also suggested a similar approach.

The revenue department had estimated that the duty forgone in the financial year 2003-04 on the Duty Entitlement Passbook Scheme (DEPB) stood at over Rs 11,000 crore.

A commerce ministry official said that a major criticism against the DEPB is that it is calculated on the deemed import contents which may not be actually imported by the user. "This point has been taken care of by imposing a 50 per cent value addition while calculating the DEPB rate.

Besides, the DEPB credit has further been limited by providing a value cap for all higher rate DEPB products," he said.

The government estimates the level of value addition of India's exports at 10-15 per cent. Assuming a 50 per cent value addition, as is the case with DEPB substantially reduces the duty foregone.