When a small change is big

Pritam Banerjee | Updated on January 20, 2018 Published on May 17, 2016

Step hard To implement changes meaningfully Rafinaded/shutterstock.com

India needs to go much beyond the Bali obligations in the matter of easing procedures at the border

Most of the reforms that address the ‘doing business’ environment are essentially related to procedural and transactional issues on the ground. In other words, these are micro-level issues that are often not in the public eye or part of the bigger narrative of reforms agenda. Trade facilitation is a classic example.

In the larger narrative, the WTO Bali Trade Agreement is seen as a game-changer. In reality, most of the key challenges related to clearance of goods at the border in India go much beyond the Bali-related obligations. A discussion of some of the main trade facilitation challenges facing business in India would illustrate this.

Some challenges

Many products require clearances from agencies other than customs: for example, pharmaceuticals require clearance (or ‘no objection’) from the Additional Drug Controller (ADC). Such clearances often take up a lot of time, especially if the process requires collection and testing of the products. The newly launched ‘single-window’ initiative of customs aims to address this problem by having a single common declaration for both customs and these other agencies, and having these agencies give their ‘no objection’ or clearance online through this electronic single window.

The problem is that these agencies still require a separate submission of physical documents and do not have processes in place that would use the information already available in the customs declaration to clear the goods in advance, prior to their arrival at the port or airport. For example, ADC could use the information in the common declaration to determine in advance whether samples would need to be collected and inform the trader and make arrangements for the same, thereby saving precious time in the clearance process. But this is not possible in the current system.

It is also important to note that the customs and excise systems have not been integrated. Separate declarations for the same customs clearance transaction are still required for these two wings of the same department. Hopefully this will be addressed in the future and the proposed GST Network (GSTN) is integrated with IceGate, the e-commerce portal of the Central Board of Excise and Customs.

Another key proposed reform is the development of a paperless clearance system. To be effective this would mean that all supporting documents required for customs clearance would be submitted online and physical paper copies would not be required. For example, a scanned copy of commercial invoice with a digital signature affixed to it would be acceptable and a physical copy would not be required.

The paperless system implementation process needs to ensure that officers on the ground do not continue to ask for paper copies, and at no stage of the process is there a requirement for a paper copy duly signed and endorsed by a customs officer. If implemented with zero tolerance for any exceptions, this reform would revolutionise the customs clearance environment and take care of a significant portion of rent-seeking that happens due to the collusion between dishonest elements in customs administration and trade.

Avoiding delays

A critical trade facilitation reform announced in this year’s budget by the finance minister is to provide deferred duty payment facility to certain ‘trusted entities’. This essentially means that the ‘trusted entity’ would have the ability to pay duty after the goods have been cleared and received by the importer.

Since a significant portion of the delay in clearance happens at the duty payment stage, this could help substantially cut clearance time and transaction costs. But in order to be effective, deferred duty payment should be extended to as many categories of ‘large and trusted’ entities and should cover all major manufacturers. This would provide a much needed push to the global supply chain integration for Make in India. Another crucial item in the reform agenda relates to risk management systems (RMS) integrated into customs online clearance platform. RMS ensures that only a small portion of the shipments that are being cleared are selected for further inspections and checks based on robust risk parameters, while the rest are cleared automatically.

An efficient RMS is critical in an environment where volume of trade has increased much faster than number of officers deployed. A large number of shipments marked for further processing would put an increasingly high workload on a small number of officials, leading to delays. India’s RMS still picks a relatively large number of shipments for further processing. This needs to be changed and a target of 90 per cent automatic system-based clearance needs to be set. It also needs to be noted that while customs has implemented RMS, the other border agencies have not. This discrepancy leads to delays in clearance by other agencies. The IT and RMS systems of the other agencies need to be brought up to speed.

These reforms seem like minutiae. But the path to actual trade facilitation is essentially a matter of detail and effective implementation on the ground. For example, a paperless electronic system can be stymied by constant demands for paper copies due to ‘doubts’ of the officer. The behaviour of an individual officer is a ‘micro’ issue which adds up to a ‘macro’ challenge in overall systemic reforms.

About policy

Another example is the frequent IT-related glitches in the customs online platform that lead to a hold-up in clearances and temporary falling back on ‘manual’ clearances with its attendant lack of transparency. The overall downtime of the system may be less than 5 per cent, but it is enough to create a poor ‘doing business’ image for the country.

The actual shape of the final policy is also important. For example, deferred duty payment could only be extended to a chosen few due to vested interests. Thus a ‘trusted’ freight forwarder who gets such a facility would be in a position to corner a large share of the market.

Thus, it is important that the top leadership in government, including the customs department, do not take their eyes off the ball. India has taken bold steps in trade facilitation in recent months that go much beyond the Bali obligations. It is time to show that these steps are towards real and meaningful changes on the ground.

The writer senior director for Corporate Public Policy, responsible for South Asia region, Deutsche Post DHL Group. The views are personal

Published on May 17, 2016
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