Sharma to make case for DEPB extension

Commerce and Industry Minister Anand Sharma will be meeting Finance Minister Pranab Mukherjee to make a case for the extension of one of the most popular incentives to exporters, the Duty Entitlement Passbook Scheme (DEPB), which is slated for expiry on June 30. DEPB is a duty reimbursement scheme, launched 14 years earlier.

The Ministry of Commerce and Industry had been under severe pressure from the finance ministry as well as other countries to do away with the scheme, which had been extended several times due to demand by exporters.

"We will be meeting the finance minister and his team soon to explain the concerns of exporters. We will take up the issue of DEPB and also interest subvention for them. Indeed, exports from India are growing but the share of Indian exports to global merchandise trade is very low," Sharma said on the sidelines of the India-Africa Forum Summit.

The interest subvention scheme has been already withdrawn by the government that nudged the cost of credit to soar to 11 per cent from 7 per cent.

Besides, adding to exporters' worries, banks have also hiked their respective base rates.

"Withdrawing such incentives will definitely hamper exports, hurt the economy and trade deficit will continue to widen. We must also keep in mind oil prices have risen to unprecedented levels, thus increased exports is the only solution," he added.

At present, exporters end up paying a slew of state-level and other forms of taxes such as electricity tax, octroi, un-rebated tax, un-rebated sales taxes, central sales taxes, none of which is rebated currently due to the federal political structure and a convoluted tax structure.

All this is expected to be subsumed with the introduction of a goods and services tax.

According to a study conducted by the National Council of Applied Economic Research, the impact of such taxes ranges anywhere between 1.5 and 12 per cent.

Even the ministry of commerce and industry failed to bring in a substitute for DEPB, for which discussions had been going on for five years.

"Interest rates today are very high. There has to be a differentiation between amount of credit and cost of credit. The situation is difficult though exports are growing at an impressive rate. We have had internal assessment within the ministry and we are looking forward to a very substantive meeting with the finance ministry upon my return," Sharma said.

Under the DEPB scheme, the government reimburses duties worth around Rs 8,500 each financial year.

Hence, the government has decided to discontinue the scheme forever in order to save some revenue for the government, Revenue Secretary Sunil Mitra had said earlier this week.

The Indian government had been subjected to pressure from its trade partner countries to withdraw the scheme, as it is considered to be a direct subsidy under the World Trade Organisation rules.

In April, exports grew 34.4 per cent to $23.9 billion, while imports rose 14.1 per cent to $32.8 billion, according to initial estimates. The official data will be released on June 1.

In the last financial year, merchandise exports ended up at $246 billion, growing 37.55 per cent compared to 2009-10 while imports topped $ 350 billion in 2010-11, up 21.6 per cent over 2009-10. The trade deficit in 2010-2011 stood at $ 104 billion.

The government has set a target of achieving $500 billion worth of exports by 2014 while also doubling India's share of exports by 2020.