The Hindu Business Line : Commerce Ministry for addressing inverted duty structure

THE Commerce Ministry is looking up to the Finance Ministry to address the inverted duty structure in the fiscal policy in the forthcoming Union Budget.

This is because high customs duties on raw materials and intermediates than finished products distort domestic manufacturers cost calculation for export production in general.

Official sources told Business Line here that the inverted duty structure is impeding the export efforts, especially in the context of the Free Trade Agreement (FTA) India has signed with Thailand, Sri Lanka and Association of South East Asian Nations (ASEAN). They said that when India's trading partners in the FTAs are also competing with Indian goods for exports to third countries, the exchange of tariff concessions need to be tempered by a realistic assessment of ground realities so that the domestic market is not made a dumping ground for import of cheap products from these countries which might be sending third country products using the preferential tariff path.

Though rigorous rules of origin do not allow such things from happening, the customs houses in the country's ports could not distinguish between products of FTA partner of India or third country imports piggybacking on FTA partner, they said.

Consumer durable manufacturers and auto component units are said to be upset over the FTA with Thailand as their products come under the early harvest scheme for concessional duty.

The electronic data interchange (EDI) among the stakeholders, such as the Directorate-General of Foreign Trade (DGFT), Customs and users, is progressing well but this is complete to the extent of 60 to 70 per cent from the customs side in the country's 33 major ports housing customs department, they said.

The sources said that a FTA cell in the DGFT is functioning to monitor the FTAs with the aim of recommending safeguard actions on any surge in imports under the preferential route and also to alert the revenue department about any circumvention of the rules of origin.

As China had built up economies of scale in production for export and if Indian industry is to match partly this gigantic stride of China, it should be given weighted deduction under income-tax on investment made for expansion and modernisation by export units.

The sources said that the Indian exporters remain "unrebated" for several disabilities such as poor infrastructure, no tax benefit for power and fuel oil usage, congestion in ports and high cost of inland movement of goods from production to shipment centres in export efforts and other levies such as sales tax, octroi.

It is reckoned that Indian exports suffer from a disability factor ranging from 19 to 22 per cent, which ought to be compensated by some schemes till the identified constraints are removed.

The exporters also plead for the rate of export credit to be pruned further to render it comparable with the rates prevailing in South East Asian "tiger" economies which had been successful model exporters in the 1980s.

The sources said that the Duty Entitlement Pass Book (DEPB) scheme to provide for duty neutralisation of imported inputs would not be out of the exporters promotion policy roaster even after March 31, 2005 as the new foreign trade policy clearly plumped for its continuation till alternatives are arranged.

However, exporters are sore over taxing the DEPB benefits retrospectively and look for a stable fiscal policy regime in the Budget.

The sources said that at an interactive session held in Chennai and Kolkata, 100 per cent export-oriented units (EOUs) supposed to operate from customs-free zones had drawn the attention of the authorities to the fact that they have to provide as many as 20 documents to different authorities robbing them of precious time and energy and adding to transaction costs. Exporters are looking for relief on this score too, they said.

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