The Hindu Business Line : Ministry invites proposals for replacement of DEPB scheme

THE Director-General of Foreign Trade, Mr L. Mansingh, on Friday invited suggestions from the exporting community to evolve a WTO-compatible scheme for the `Duty Entitlement Pass Book' scheme. The scheme is one of the export incentives, which allows an exporter to import raw materials duty-free.

From April 1, 2005, the DEPB scheme is to be scrapped as it not WTO compatible. WTO rules allow a country, which has a per capita GDP of less than $1,000 (India is among them), to give export subsidies. But the rules also allow the importing country to levy countervailing duties on the subsidised goods they import.

Many countries have been levying countervailing duties on some Indian goods that have been exported, to manufacture which the exporters imported raw materials duty-free, under DEPB.

Also, some countries are objecting to the DEPB scheme saying that export subsidies must be directly linked to the exported goods. Under the DEPB scheme, an exporter uses the incentives got from one export transaction, to import goods without duty for the next export transaction.

Because of these issues, the Government of India has decided to discontinue the scheme. The other scheme, duty drawback, under which the Government pays back the various taxes that have gone into the manufacture of a product, is first to be merged with the DEPB scheme now and then eliminated.

In the place of these existing incentives, the Government intends to bring in another scheme. At a meeting here, organised by the Federation of Indian Chambers of Commerce and Industry (FICCI), Mr Mansingh said that the exporters should put forth suggestions for a new scheme that would not only benefit exporters but also be WTO-compatible.

Mr Mansingh observed that the federal structure of India is such that the Union Government is unable to bring about a scheme that would neutralise the State levies. "We should export goods and services, not taxes. Exporters are entitled to get back all the taxes, including those levied by the state governments," Mr Mansingh told Business Line.

For example, he said, in Tamil Nadu there is an eight per cent entry tax, which cannot be neutralised by any scheme.

Mr R. Veeramani, Chairman of Gem group of companies, wanted the DGFT to get the Reserve Bank of India nod to allow Libor-linked foreign currency loans to be given out of the country's foreign exchange reserves. "I am earning foreign exchange, but I am not getting the benefit of my own earnings," he said.