The Hindu Business Line : Exporters sore over unchanged DEPB rates

Finding solution
Officials in the Department of Commerce say that the Government will not end the scheme before the substitute scheme is in place.
The Department of Commerce too sought at least one per cent increase in DEPB rates across-the-board.

G. Srinivasan

New Delhi, Dec. 1 Exporters reeling under rupee appreciation and looking for some succour are disappointed that the rates disbursed under the Duty Entitlement Passbook Scheme (DEPB) for reimbursement of customs duty have not been revised even by a tad.

Re problem

A cross-section of exporters to whom Business Line spoke to said they had sought an across-the-board hike in DEPB rates by 5-6 per cent but in the three tranches of reliefs, only once these rates were raised by 2-3 per cent for a few products and not across-the-board and in some cases, the rates have been brought down by 1 per cent.

They said at a time when they were affected by appreciating rupee, positive steps in this direction would have offered them some cushion. The Department of Commerce too sought at least one per cent increase in DEPB rates across-the-board.

The President, FIEO, Mr G.K. Gupta, said even as the DEPB scheme would come to end by March 31, 2008 the Government had not reassured them that a substitute scheme for DEPB would be in place or the existing scheme would continue beyond the current fiscal, in the absence of which exporters face uncertainty in booking orders from January 2008.

Substitute scheme

But officials in the Department of Commerce say that the Government would not end the scheme before the substitute scheme is in place and efforts have been continuing to find a solution to the DEPB issue. The DEPB scheme proved to be very popular in the last fiscal as 30 per cent of Indian exporters availed themselves of the benefits under the scheme.

It allows the manufacturers to use partly or fully domestic inputs and refunds the customs duty as if the domestic inputs had been imported, thus sub-serving the use of domestically produced inputs in the production of exported products. Yet another attraction was that the DEPB scrip is freely transferable.

Officials said those availing themselves of the DEPB scheme were not entitled for payments under the drawback scheme operated separately by the Revenue Department for reimbursement of customs duty. However, the additional customs duty/excise duty paid in cash or through debit under DEPB scheme may be adjusted as CENVAT credit or duty drawback.

Partners’ treatment

As the DEPB scheme does not even entail imports to be made of the inputs used in the production process and that the fact the duty credit is freely transferable disconnects eventual imports against which it is used from the actual inputs used in the production process of the exported product. As for the verification system, to confirm which inputs are used in the production process the DEPB scheme flounders at the first hurdle as there is no such system. Since the DEPB scheme does not fulfil either of the criteria, some of India’s trading partners have treated it as a subsidy and applied countervailing duties on imports.

India’s trading partners took objection to the DEPB scheme, terming it as WTO-incompatible subsidy.

‘Unenviable’

Meanwhile, the Union Finance Ministry has said in this year’s budget that the revenue foregone account of DEPB scheme during 2005-06 amounted to Rs 5,650 crore (provisional) and the estimated figure for the current fiscal at Rs 4,873 crore. The reluctance of the Union Finance Ministry in providing more reliefs under the questionable scheme is understandable, trade policy analysts say, adding that the predicament of exporters under these circumstances too remain unenviable.

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