Financial Daily from THE HINDU group of publications
Wednesday, Apr 10, 2002
Looking beyond the Exim Policy
P. P. Prabhu
THE Exim Policy, announced on March 31, has been acclaimed by the exporting community and has received wide appreciation and support. The policy will give the necessary momentum and strength to the country's export endeavours. There are many welcome initiatives, including measures for freeing agricultural exports. Export growth can be sustained only on the basis of competitive advantage and strength.
The Exim Policy alone cannot ensure the growth of exports. The policy provides for duty neutralisation instruments to give either rebate, or relief from domestic taxes and duties, which are prerequisites to ensure a level- playing field to exports. The policy also deals with procedural issues that have a bearing on the transaction costs of the exporters.
There may not be need for an Exim Policy nor there will be any interest in these policy pronouncements when the tax rates come down to low levels and the taxation structure becomes less complex. Then a simpler and straightforward rebate scheme may be sufficient and the delays and costs associated with interaction with various agencies will also be eliminated. It is unlikely that such a development will happen during the period of the current policy. However, it should be possible to practically eliminate procedural complexities and do away with the need for interface with government agencies through improvements in the system.
The committee constituted by the government on the formulation of the Exim Policy made two major recommendations. One, the introduction of computerisation and Electronic Data Interchange. A few years back, it was inconceivable that DGFT offices would issue licences on the very day the application was made. But, today, it is a reality, thanks to computerisation. Now, the exporters can file applications, make amendments, seek clarifications, and even obtain licences sitting in their own offices and all without any delay (now a signed copy has to be sent only for legal requirements); exporters can even participate in discussions through video conference.
All this change could be brought about because of computerisation that has helped to transform the very nature of the functioning of the licensing offices. If all the agencies dealing with exports ports, Concor, banks, Customs, airports also computerise their operations and participate in the EDI, which has been under implementation for over four years, the exporters will not have to spend their time and efforts on the unproductive work of following up and pursuing the various offices which now take away their valuable time.
The exporters should be able to obtain their licences, file the export shipping bills, give any clarifications required, get the valuation completed and their consignments passed for export and secure their duty drawback claims without having to follow up their cases and claims with the various authorities. The process of monitoring and verification of fulfilment of exports and settlement of export obligations will be simpler. The gathering of data can be automated. The greatest benefit will be in terms of transparency. The manpower requirements of the various offices dealing with exports will also come down; and for the exporters there will be considerable savings of costs and time. In view of the manifold benefits that computerisation and EDI will bring in, its introduction should receive the government's priority as part of the efforts towards improving efficiency, imparting transparency and reducing transaction costs.
There is a perception that liberalisation of procedures and introduction of self-certification may afford scope for possible misuse by unscrupulous exporters of the flexibilities provided, resulting in leakage of revenues. Given the instances of over-invoicing of exports and frauds detected in recent years, this apprehension is justified. But the reversion to tighter controls and conferring greater authority on the personnel of regulatory agencies will not be a solution. That will only provide scope for harassing the innocent, while affording an opportunity for the fraudulent to go scot-free with the collusion of the officials.
It should be possible to fully liberalise the system of physical verification and checking with minimal risk of revenue leakage and misuse of the duty neutralisation schemes. It is estimated that over 70 per cent of exports is by the export status holders or regular exporters and the number of such exporters may be around 6000. It should not at all be difficult to build a comprehensive profile of the exporters and also develop a system of gathering useful intelligence about their export activities.
It is well-known that misuse of the different schemes and fraud takes place only in respect of a few sensitive items. Hence, it should be possible to develop a rational and efficacious risk-assessment system, based on exporters' profile, the nature of goods exported (whether prone to over-valuation), the destination (whether to certain destinations such as Dubai, Hong Kong, involving lesser fright and low-duty regime) and the extent of incentive involved and on the basis of these parameters, evolve a rational inspection regime. A physical inspection and detailed scrutiny system based on such risk assessment, along with random physical inspection is the need, in place of the present system of physical inspection which is unproductive and affords scope for misuse of authority without any gains. Similar practices are in vogue in income-tax department and found to be practical and effective. It is time that a similar system was introduced in the Customs, which will minimise the problems of the genuine exporters.
Along with the liberalisation of the system and the movement towards a trust- and system-based on self-certification, it would be necessary to simultaneously introduce a system of punishment for the fraudulent and mischievous exporter. The rules should be such as not to afford any scope for the harassment of the genuine defaulter; nor any authority should be there to penalise for unintended shortfall in exports.
In fact, there should be unambiguous and non-discretionary measures for dealing with such instances of failures/defaults. But an exporter who exports rags instead, and claims rebate for garments, should be imprisoned. There should be punishment for cheating and not for failure or error or difficulty in fulfilment of exports.
Incidentally, in many cases of genuine default in the fulfilment of export obligation, the exporter is now discouraged from seeking settlement of defaults because of the prohibitive 24 per cent penalty for annum to be paid. A reduction of the rate to, say, a maximum of 15 per cent should see many exporters who could not genuinely fulfil the obligations fully or partly for reasons/factors beyond their control, seeking to settle their cases. The introduction of EDI and the development of a rational risk assessment system based on intelligence and other criteria should help the government agencies efficiently discharge their responsibilities without running the risk of revenue leakages; but, importantly, these improvements will bring about greater transparency in the working and reduce the time and cost spent by the exporters on unnecessary and unproductive activities. We have to modernise our procedures and systems connected with international trade if we have to emerge as an important player in the global trading arena.
(The author is former Commerce Secretary.)
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