The
finance ministry has decided to phase out the tax breaks that exporters were getting under the popular duty entitlement passbook (DEPB) scheme from June 30. The scheme was costing the national exchequer Rs 8,000 crore in revenue. Revenue secretary Sunil Mitra said on Wednesday that since the country's export industry was doing well, the incentive that was scheduled to end on June 30, would not be extended.
The DEPB scheme allows for reimbursing exporters the customs duty that has been paid by them on imported inputs used for producing export goods. "We really feel that we are rewarding exports on one hand and losing revenue on the other hand," Mitra said. "It will be phased out on June 30. That is the finance ministry's decision," he added. The scheme, which was first introduced in 1997 to make Indian exports more competitive, had been getting annual extensions during the last couple of years. The scheme had been extended by six months for the last time till June 30, 2011, but exporters were hoping for another extension on the ground that they were still recovering from the global meltdown.
The customs department is staunchly opposed to the DEPB scheme as it has come across instances of misuse and the scheme is also not considered entirely compatible with WTO rules.
The finance ministry has been opposed to the scheme as it entails a huge outgo of revenue at a time when the government is trying to reduce the fiscal deficit and strengthen the macroeconomic fundamentals of the economy.
About 25 per cent of India's exports could be affected by the withdrawal of the incentives, the Federation of Indian Export Organisations (FIEO) said. The move is likely to impact companies producing twowheelers, cars and small and medium commercial vehicles for export.
Commerce secretary Rahul Khullar had said the government would try and introduce other incentives, such as targeted market schemes and product schemes to encourage exports. Earlier this month, commerce minister Anand Sharma had released a strategy paper for doubling India's merchandise exports to $500 billion over the next three years. The ambitious target has been set following the 37.5 per cent surge in exports during 2010-11 despite the slow economic recovery in the US and Europe.
The new strategy paper states that increased imports are unavoidable for feeding an economy, which aspires to grow at the rate of nine to 10 per cent. "We have, therefore, no option but to focus on higher export growth and devise a strategy for rapidly increasing merchandise exports to ensure that the balance of trade and current account deficit remain within manageable limits," the paper states.
Sharma said the strategy has identified sectors producing high value-added goods where the country has considerable growth potential, including engineering goods, chemicals, pharmaceuticals and electronics.
Engineering products, such as auto and auto components, are expected to touch $125 billion with their share in the Indian export basket estimated to go up from 18.2 per cent at present to 25 per cent in 2013-14.
However, while the finance ministry thinks that exports do not require the DEPB scheme any more because of the improved performance, the commerce ministry attributes the jump in exports to incentives introduced under various schemes.
Courtesy: Headlines Today
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