The Commerce Ministry has once again deferred the launch of its new foreign trade policy (FTP) as it felt the need to have wider consultation with industry.
The current FTP (from 2015-20 but extended thereafter till March 2023) is a policy document that spells out the objectives and strategies to boost exports.
It is also an important document that interprets rules, regulations, and procedures in international trade transactions, which are critical in facilitating in export-import operations and making the export sector more competitive.
Often broader trade policy challenges get more attention than operational challenges faced by the trade community. The government also feels that operational issues are recurring in nature and can be handled throughout the year. There are four major operational challenges that deserve utmost attention.
Four issues
First, the Remission of Duties and Taxes on Export Products (RoDTEP) scheme aims at neutralising the taxes at the State and local levels not otherwise refunded under any other mechanism. But this does not include “cess and levies,” which has emerged as a potent instrument in recent years, to collect funds for designated purposes. Not only this, the RoDTEP benefits are confined to limited sectors and a number of important sectors such as pharmaceuticals (chapter 30 of the FTP), chemicals (chapter 28 and 29) and steel (chapter 72 and 73) are out of its purview.
It is important to understand that the RoDTEP is a refund of duties and taxes (electricity duties, petroleum taxes, stamp duty etc.) which are embedded in manufactured products for exports. These taxes and duties are also applicable on excluded sectors and therefore need to be refunded to all sectors.
Under the current policy, RoDTEP benefits are not available to advance authorisation holders and EOU’s. Exemption granted under the advance authorization/EPCG scheme/EOU is primarily from customs duties and IGST and not from embedded taxes like electricity duty, diesel/petrol taxes etc. The RoDTEP benefits needs to be extended to Advance Authorization holders and EOU’s on priority basis.
Secondly, there is long list of pending cases of redemption with respect to Advance Authorization scheme due to pre-import conditions. This needs to be sorted out immediately by withdrawing the pre-import condition retrospectively.
If this is not possible, examination of pre-import condition should be limited to the actual violation based on actual import with respect to export and should not be based on the licensing period. For example, an Advance Authorization issued in December 2018 may not have any import or export till January 15, 2019. If this is the case, why should it be subjected to pre-import condition just because it is issued in the period when pre-import condition was applicable?
If the government wants a solution, it should take into account the details of imports and against each authorisation on individual merits and help redeem such cases. To achieve the $1,000 billion exports target by 2030, it is important to resolve pending cases in a justified and time-bound manner. This will help exporters to focus on boosting exports rather than grappling with their existing cases.
Thirdly, the government had introduced Manufacture and Other Operations in Customs Warehouse (MOOWR) in 2019 to facilitate duty free imports for exports under the Customs bonded warehouse. This scheme is akin to Export Oriented Units (EOU) of the FTP. Since, the EOU scheme has dual monitoring, one by Development Commissioner and another by customs, it is better to bring about a simple methodology for conversion of existing units under EOU scheme into MOOWR scheme.
Further, there are significant ambiguities on the scope of operations, depreciation provisions relating to capital goods etc., which need to be addressed for greater transparency.
Fourth, imports are subject to compliance with domestic laws as outlined in the Para 2.03 of the FTP. It provides a generic guideline and actual regulations are multiple and not available at a single point.
There is need to provide greater clarity and explanation of laws, rules, orders, regulations and technical specifications stipulated in Para 2.03 of the existing FTP. Also a separate appendix in the Handbook of Procedures covering all compliances under various domestic laws is required.
Last but not least, the DGFT must ensure that the new FTP focusses more on addressing operational issues of EXIM operations as they reduce not only the cost of doing operations but also improves firm level export competitiveness.
Kasture is a Director at EXIM Institute Mumbai; and Singh is Associate Professor at FORE School of Management, New Delhi. Views expressed are personal