Non-basmati export norms create new problem of plenty

Allocation of scarce resources by the State, whether to do with coal blocks or telecom spectrum, is often a fertile ground for controversies and even scams.

It is no different in the case of another scarce resource – export of non-basmati rice, prohibited since April 2008. On July 19, the Directorate General of Foreign Trade (DGFT) issued a notification permitting up to one million tonne (mt) of shipments and inviting applications from parties with “intent to export”.

Given surging global prices, the notification allowing exports, though limited to one mt, led to a virtual scramble among prospective shippers to grab a piece of the cake, which is to be individually allocated on a first-come-first-serve basis.

As the DGFT's window to receive applications via e-mail opened at 1000 hours on July 21, some 1,000 intents were reportedly received within five minutes. By the end of the day, the number of applications totalled around 6,000 and crossed 7,500 at 1700 hours on July 22, when the window was closed.

The DGFT notification, while asking applicants to specify the quantity sought to be exported, had fixed an individual cap of 12,500 tonnes. If each of the estimated 7,500 applications was for this maximum limit , it would have added up to 94 mt , close to India's annual rice output and three times the world rice trade. The one-mt quota itself would have been exhausted within a minute of the receipt of applications!

“It is a situation tailor-made for people to go to court. There are bound to be many, including those with genuine export credentials, who would cry foul over not getting quotas on account of being late by just a few seconds,” sources pointed out.

The DGFT would be announcing the list of successful allottees on July 27, after which they will be given time till August 18 to submit the required documents, irrevocable and confirmed letter of credit and a performance bank guarantee for 10 per cent of the value of exports. In the event they do not produce these documents, their export quota would be allocated to the waitlisted applicants.

“This whole mess is partly due to the very low minimum export price (MEP) of $ 400 a tonne set in the notification. They should have fixed the MEP at least $ 100 higher, which would have kept away non-serious players. A low MEP makes sense only if you allow unlimited exports and not restrict it to one mt as has been done,” the sources noted.

The present situation, according to them, is conducive for an informal secondary market for quotas to emerge. The ones to be allotted the quotas would probably be approached by trade houses and other established exporters having ties with overseas buyers. While the exports as well as letter of credit may get issued in the allottee's name, the actual contracts and shipments would be undertaken by the trade house.

“What we are seeing here is a repeat of raw cotton exports, where again a grey market for offloading quotas at a premium or on a profit-sharing basis developed. But in cotton, it took 10 days from the opening of contract registrations for the entire 55 lakh bale export quota to be exhausted. Here, it has happened within minutes, if not seconds,” the sources added.

COMMENT NOW