Exim Policy measures to boost exports

EXIM MATTERS

The mini-Exim Policy intends to boost exports but might boost deemed exports and imports as well, at least in the short run.

The import of gold and silver has been made easier. Greater flexibility has been provided under the Export Promotion Capital Goods (EPCG) scheme, Duty Free Replenishment Certificates (DFRC) and Duty Free Entitlement Certificates (DFEC) for service providers, Annual Advance License (AAL) scheme and so on.

In short, the emphasis is on 'duty free imports led exports growth'. The Government seems to have come to a view that the embarrassment of bulging foreign exchange reserves of over $100 billion can also be dealt with by allowing easier imports that will generate higher demand for the foreign currency and simultaneously impart necessary dynamism in the economy.

Thus, a clear pattern is discernible in the reduction of the peak rates of Customs duties, abolition of special additional duty, greater flexibilities at lower duties under baggage rules, relaxation of some non-tariff barriers on imports of cars, food and textile items etc., allowing easier import of prototypes, duty free fuel and so on.

Capital goods at lower duties will enable entrepreneurs set up capacities at much lower costs. That can revive investment in the economy, especially in the manufacturing sector.

Local capital goods manufacturers need not necessarily be worried as they can also use the deemed exports provisions to be competitive vis-à-vis foreign manufacturers.

At present, EPCG license holders can import capital goods from abroad at 5% duty but if they source the capital goods from indigenous suppliers, the latter can import the required inputs at zero duty.

The policy says the deemed exports facility has been extended to supply of goods to any projects or purposes in respect of which the ministry of finance, by a notification, permits the imports of such goods at zero Customs duty.

The provision needs amplification because most notifications relating to projects or purposes that attract zero Customs duty are conditional.

Whether the deemed exports facility will be automatically available if the conditions are satisfied is not too clear.

Moreover, the procedures also need to be clarified as to whether any importer of duty free goods can issue Project Authority Certificate to enable the local supplier claim deemed export benefits.

In the mini-Budget, the basic Customs duty for projects that envisage more than Rs 5 crore investment in plant and machinery was brought down to 10%.

There is a case for extending deemed export benefits to local manufacturers supplying capital goods to such projects also. The attempts to modernise the system by facilitating electronic submission of applications, recognition of digital signatures and electronic transfer of application fees etc. are welcome.

The question, however, is whether the entire system of delivery of export incentives can be done by Customs and excise departments without any intervention of the licensing offices.

Trying to reduce transaction costs is unnecessary when the transactions are not necessary in the first place.

The Kelkar Committee has given a few suggestions on how transaction costs can be eliminated altogether. Surprisingly, the Duty Entitlement Passbook (DEPB) rates have not yet been revised, consequent to reduction of peak Customs duty rates and abolition of SAD.

The revenue department has, however, revised the All-Industry Rates of Duty Drawback.

E-mail: tncr@sify.com