Commerce Minister urges exporters
to focus new market
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Mr. Kamal Nath, (4th from left) addressing the meet. On his right are Mr. A. Sakthivel; Mr. R S Gujral & Mr. Ajay Sahai. On his left are Mr. S S Patil, President, FKCCI; Mr. Dinesh Sharma, Jt. Secy, (Agri), MoC ; Mr. D Muralidhar, Sr. Vice President, FKCCI; and Dr. Rajkumar Khatri, Commissioner, Industries & Commerce, Govt. of Karnataka. |
Union Commerce & Industry Minister Mr. Kamal Nath says that Indian exporters should focus strategies to capture non-traditional and emerging new markets. Addressing a meeting organized by FIEO on 8th February at Bangalore, he said, Indian exporters should respond to new challenges and look for new avenues.
More than 250 exporters joined the meeting organized by FIEO in association with FKCCI and VITC. The Minister was accompanied by senior officials like Mr. R S Gujral, Director General of Foreign Trade, Mr. Dinesh Sharma, Jt. Secretary (Agriculture) Ministry of Commerce, Dr. Rajkumar Khatri, Commissioner, Industries & Commerce, Govt. of Karnataka.
Referring to the issue of FTAs raised by FIEO Vice President, the Minister said that India had never been a big player in global markets during the past and hence there were some limitations. However, during the last three years, India has taken several initiatives to conclude agreements with ASIAN, SAFTA, EU, etc., and has recently concluded an agreement with Japan, the Minister added.
Responding to the exporters’ viewpoint that not all taxes and levies were refunded, Mr. Nath said that there were practical problems in implementation and invited suggestions for better mechanism to resolve the issue.
Assuring the exporters from Karnataka, the Minister said the the feasibility study on Chennai-Bangalore-Mumbai industrial corridor had already been initiated and the Government would give highest priority to implementation of Bangalore-Mangalore industrial corridor.
Mr. R S Gujral, DGFT in his address highlighted various steps taken by his department for helping the exporters. On the issue of rupee appreciation, he said, the Directorate is fully aware of the problems faced by the exporters and is trying to address as many issues as possible, however, in many cases where there is involvement of Finance Ministry, the decision making could be delayed.
Earlier, FIEO Vice President Mr. A Sakthivel in his opening remarks mentioned that export of labour intensive industries products like textiles, readymade garments, handicrafts, leather products, etc had declined due to depreciation of the dollar. He said, "This is the biggest cause of concern as these sectors are employment intensive." He, however, expressed confidence that exports would accelerate in the last quarter and total exports would touch 150billion USD by the end of March, a little short of the 160 billion USD target.
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Govt. mulling zero duty EPCG, exemption of state levies, other relief The Commerce Minister circulated a note during the meeting listing out the steps being contemplated by the Government. The note says: Exporters are facing difficult times on account of appreciation in rupee. This has affected their competitiveness vis-ŕ-vis other countries, especially China, Bangladesh and Sri Lanka (in case of readymade garments), Vietnam (in case of agriculture products) and many other countries. In view of this, the Government needs to take certain steps to increase the competitiveness of Indian exporters in the upcoming Foreign Trade Policy. The steps contemplated by the Government include: Broadening/deepening of Award (incentive) Schemes
Steps to ensure that all the taxes incurred on export production are reimbursed to the exporters:
Steps proposed to be taken to reduce the transaction cost for exporters:
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Mr. Sakthivel stressed the need for rationalization of credit rates to the SME export sector which he felt was an extremely critical requirement at this stage. While arguing for more regional trade agreements, Mr. Sakthvel said that almost half of the world trade was carried out under RTAs and countries like Mexico and Singapore carried out respectively 85% and 63% of their total trade under such agreements. In the contrast, only around 30% of our global trade is under RTAs. If India’s major trading partners conclude RTAs with other nations, then Indian products would become relatively more expensive and might lose price competitiveness in these markets because of the relatively higher tariffs on them. "Today when our exports are around 14% of the GDP and the trade-GDP ratio is almost 33%, our economy cannot afford this trade diversion," Mr. Sakthivel added. He urged the Minister to take up issues of RTAs with all major trading partners on war footing.
As regards immediate measures required to offset the losses borne by exporters under appreciating rupee, FIEO Vice President suggested the following:
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Exporters should get complete exemption from payment of service tax and fringe benefit tax.
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Interest rates on export credit should be brought down to 6%.
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State levies and taxes should be refunded to the exporters to the tune of 3% of FOB.
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Dual exchange rate system should be brought in for exporters. USD may be fixed @Rs.42 or hedging cost may be refunded to the exporters.
While initiating the proceedings of the meeting, FIEO Director General Mr. Ajay Sahai said that Foreign Trade Policy announced by the Union Commerce Minister four years ago had helped India to achieve yearly growth of more than 20%. "Despite the constant appreciation of Indian Rupee Vis-a- Vis USD, the export data for April-December 2007 shows a growth of 21%," said he.
Mr. Sahai appreciated the efforts of the Minister in bringing in record FDI to the country which touched USD 15.73 billion in the first 10 months of the calendar year, showing a growth of 93%. He also thanked the Minister for helping India achieve the leadership of developing countries during Doha Round of negotiations.
Mr. S S Patil, President, FKCCI in his welcome address stressed the need for more focus on infrastructure requirement of exporters in Karnataka. "Infrastructure for storages, pack-houses and cold storage needs to be substantially improved for augmenting agri exports, which have not shown much growth in the State," he said.
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| Commerce Minister addressing the meet at Bangalore on 8th Feb. On the dais from left are Mr. Ajay Sahai, Mr. R.S. Gujral and Mr. A Sakthivel. |
While highlighting various infrastructural related issues of Karnataka, Dr. Rajkumar Khatri Commissioner, Industries and Commerce, Govt. of Karnataka brought following issues to the notice of the Minister:
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Chennai–Bangalore-Mumbai Industrial Corridor should be approved by Government of India.
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Bangalore–Mangalore dedicated container train may be introduced to connect Bangalore ICD to NMPT.
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Road connectivity to Mangalore from Bangalore should be improved.
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Office of the Asst. Drug Controller should be set up at Bangalore: As per the current regulations, pharmaceutical import and export consignments are required to be verified by the Drug Controllers before clearance by customs. At present, the verification is done at Chennai.
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Additional fund may be allocated to Karnataka under ASIDE Scheme considering huge service exports from the state.
Issues raised by Participants with the Minister
Participant: At present, 100% EOUs are entitled for VKGUY, provided they are not availing the IT benefit. Gerkhin exporters are facing highest duties in importing countries apart from other NTBs. To overcome these, it is suggested that VKGUY may be extended to EOUs which are exporting Gerkhin irrespective of availment of IT benefits.
The Minister: Our Government is well aware of NTBs and is at present negotiating with EU on trade agreement. Kindly send a detailed note to the Jt. Secretary in charge for EU and mark a copy to me so that these issues can be taken up at the highest level.
Participant: For evolving a system for refund of service tax, it has been suggested that the percentage share of export of a company may determine the rate of refund and the companies which are exporting more than 80% of their production should be entitled for 100% refund.
Export of Silk and Silk products from the country exceeded the export target and reached Rs. 3244 core during last financial year by overcoming stiff competition faced from countries like China. However, during the last 9 months of current financial year, there is a negative growth. This is a cottage and agro-based industry giving employment to 65000 people in villages and forest areas. It is suggested that VKGUY should be extended to Silk Industry.
To help exporters to overcome the problem of rupee appreciation, the government announced increase in duty drawback for a number of items, which do not include silk products. Silk and Silk products should also be considered for increased Duty Drawback.
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Recently, there was downward revision of DEPB rates for coffee. Coffee is a seasonal commodity and procurement and pricing is fixed during the season. Sudden downward revision of DEPB will affect the costing and adversely affect the profitability. It is suggested that DEPB for coffee may kept at previous rates and rates should be constant. VKGUY benefit also may be extended to coffee. When export is declining in a particular sector, the maintenance of average export obligation under EPCG scheme for 3 year period is a problem for exporters. It is suggested that the average export obligation calculation may be made on 7 year basis. |
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An exporter raising a point. |
Import duty under EPCG Scheme should be brought down to zero. The scheme is losing its relevance with general decline in import duty.
The Minister: The general duty structure has come down; there is no attraction for EPCG scheme. The government is considering how to retain the relevance of the scheme. But as far as reducing import duty is concerned, a large number of representations have been received from industries not to reduce the import duty further as there is increased inflow of imports noticed during recent months. Instead of reducing the duty across the board, the Government is of the view that the duty structure should be country specific so that India can take the advantages as well as protect the domestic industry.
We have recently concluded Indo-Japan trade negotiations wherein Japanese Govt. has agreed for 0 to 5% duty on 95% of the product line. As far as the challenges faced by Indian exporters are concerned, the major problem is NTBs like phyto sanitary measures, packaging standards, etc. This is going to be the challenges of the future also. I request the exporters to give the details on NTBs faced by them to my department.
Participant: There is a promise in the FTP stating that the definition for manufacture shall be incorporated retrospectively in the Income Tax Act. This has not been implemented so far and exporters are facing lot of problems.
The Minister: The delay is due to varying judgments given by various courts. The issue is pending with the Law Ministry, but I am hopeful that it will be resolved shortly.
Participant: While calculating deduction under 80(i) a and 80(i) b of Income Tax Act, the authorities are disallowing all incentives irrespective of the fact that DBK, etc are the refund of duties paid on the raw materials. Disqualifying export incentives amount to huge demands by IT department on exporters.
The Minister: I will look into this issue; kindly send me a detailed note in this regard.
Participant: As per Para 9.16(a), EOUs are allowed inter-unit transfer provided the goods undergo further processing. However, for the Gerkhin exporters there is no possibility of change in the description of goods as well as preservatives. It is suggested that Gerkhin may me allowed for inter-unit transfer without the condition of further processing.
The Minister: Kindly submit a detailed note.
Participant: Granite and Marble blocks may be allowed for import without any restriction. Alternatively, higher customs duty may be imposed.
The Minister: There are different interest groups in this business and considering the interest of our mining industry and the workers attached to it, the Govt. has taken this decision, though the policy needs correction. I request the DGFT to call for a meeting of all stakeholders and formulate a harmonious policy considering the divergent interest of all the stakeholders.
Participant: The present EU regulation of registration for chemical industry is very cumbersome, expensive and it works as NTB.
The Minister: I assure you that in case it is found that EU is using this as an NTB, our government will not hesitate to take retaliatory action against that country. Kindly send me the details.
Issues raised by Participants with DGFT
Participant: Cotton, Jute & Coir may be brought under VKGUY Scheme.
The DGFT: This issue will be examined for the forthcoming FTP.
Participant: Most of the time, in order to save time in importing the raw materials, the exporters buy the same from local market. In course of this trade, they take the cenvat facility on inputs as allowed under Exim Policy and also avail rebate of excise duty on final products under Rule 18 of Central Excise Rules. As per FTP under Para 4.4.7, cenvat credit facility shall be available for inputs either imported or procured indigenously. However, exporters are facing hardship from Central Excise Dept with respect to the availment of cenvat and rebate facility due to the Customs Notification No.40/2006 Customs and show case notices asking exporters to refund rebate claim on the final product.
The DGFT: On transferability of DFIA, CVD has to be paid. The Govt. cannot allow double benefit.
Participant: Exporters who are not able to fulfill the Export Obligation due to unforeseen circumstances like export orders cancelled, market price crash, etc are facing problem while closing their Advance Licences for excess imports. Earlier, the DGFT was accepting DEPB/DFRC Licences against shortfalls in Export Obligations in lieu of customs duty for Excess Imports. This system was very useful and may be reintroduced.
The DGFT: Earlier, this benefit was available to EPCG and not for Advance Licence and this has been discontinued. However, there is a provision in FTP to allow closure of obligation in case of unforeseen circumstances as force majeure clause. The exporter may take up his case with DGFT under this provision.
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Participant: Due to appreciation of Indian Rupee by over 12%, exporters are losing their competitiveness and are not in a position to meet the average as well as additional export obligation mandated under EPCG Scheme. It is suggested that maintenance of average obligation may be withdrawn The DGFT: For some industries, the benchmark of previous year export is difficult for calculating average export obligation. This issue has been placed before the Minister who is planning to take it up with the Department of Revenue. |
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A view of the audience. |
Participant: When capital goods are imported by paying normal duties, the importer is entitled to avail the cenvat credit of all the duties, except basic customs duty. In other words, the importer pays only 12.5% Basic Customs Duty + 3% Education Cess and the rest is Cenvatable. However, in the case of imports under EPCG Scheme, the importer has to pay 5% and the rest Duty saved amount including Additional Customs Duty + SAD + Education Cess is taken for computation of Export Obligation. Thus, the EPCG Scheme is becoming unattractive as the difference in duty between normal and under EPCG is only 7%. It would be helpful if CVD, SAD & Education Cess are excluded in calculation of export obligation under EPCG Scheme.
The DGFT: This issue has already taken up with the Department of Revenue. We will again discuss the issue with Revenue Department.
Participant: Currently, gold and silver are being imported from various sources through Government nominated agencies with service charges being levied on the same. Service charges are being paid since the concerned agencies of the Government as an intermediary between buyer and seller. The only real services being performed by these agencies are moving of documents between the two parties. To maintain the growth, profitability as well as to remain competitive, it is crucial to continuously improve procurement efficiencies. The direct import of gold and silver by corporate entities will increase the competitiveness of jewellery industry, reduce attendant delays in the import of gold and silver and reduce the volume of the related documentation. It is suggested that policy guidelines may be framed for direct import of gold and silver.
The DGFT: RBI treats import of gold and silver like that of currency and hence allows it only through nominated agencies. A representation received has been received by the Minister and the Department has taken up this issue with RBI.
Participant: The current policy doest not permit for broadbanding of R & D activities and manufacturing activities together. This process in turn makes the entrepreneurs to go through lengthy bureaucratic procedures to establish separate units for the same line of activity thereby spending considerable amount of time in bonding and customs formalities, process and duplication of paper work, etc. The same equipment is used for dual purposes without any fresh outgo of foreign exchange, therefore the procedures are quite unnecessary. It is, suggested that amendments may be made regarding the provisions for broadbanding R & D activities and manufacturing to enable the entrepreneurs to concentrate much on business development and export earnings.
The DGFT: This issue cannot be considered at present, as the zero duty schemes are for the specific purpose of R&D and this needs to be maintained.
Participant: As per Rule 30 (8) of SEZ Rules 2006, Drawback or Duty Entitlement Pass Book credit against supply of goods by Domestic Tariff Area supplier shall be admissible provided payment for the supply are made from the foreign currency account of the unit. Whereas, as per Para 4.1.6 of FTP, Advance Authorization can be availed for exports to SEZ units/ Developers/ co-Developers, irrespective of currency of realization. As per Public Notice No 94 (RE 2007) 2004-09 dated 01.01.2008 from DGFT, Exports to SEZ units/ supplies to Developer/ Co-developers, irrespective of currency of realization, would be counted for discharge of Export obligation. Hence, the above condition of requirement of foreign currency payment stipulated in SEZ Rules, to avail Drawback or DEPB related to supplies from DTA, may be removed.
The DGFT: This point is valid and has been taken up with the Ministry of Finance. If the Finance Ministry agrees, then this provision may be incorporated in the forthcoming revision of FTP.
Participant: At present, value caps have been fixed for several engineering products exported under DEPB, making the scheme less attractive. Govt. may consider giving more benefit to engineering exporters to overcome the problems due to rupee appreciation.
The DGFT: Under DEPB, value cap has been fixed on certain items. Recently value cap has been removed for some items. To remove or amend, complete data is required. Exporter is requested to forward the data though the EPC for consideration.
Participant: Manganese Ore may be allowed to export freely.
The DGFT: Manganese ore is a raw material for ferro alloys which in turn is the raw material for steel industry. For considering this, the industry is requested to get recommendation from the Department of Steel.
Participant: While all exporters are partially compensated for erosion of value of USD, EOUs have been neglected. EOUs may be given level playing field.
The DGFT: The point is well taken.
Participant: Seafood industry is seasonal industry and deploys labour contractors during the season. However, there is no exemption of service tax for labour contracts even though the labour is used for export processing.
The DGFT: Services, which can prove direct nexus with products exported, are considered for service tax exemption. At present, only 9 services have been notified. A list of 11 more services, which prove direct linkage with the product exported, has been prepared by the Commerce Ministry and is under the consideration of Finance Ministry. However, this particular issue is not feasible.
Participant: Some of the formulations exported by the pharmaceutical exporters are approved in the importing country and not approved in India. In this case, for manufacturing of these products, there is a regulation of getting approval form Drug Controller of India, New Delhi, which is cumbersome and time consuming. It is suggest that State Drug Controller may be allowed to give approval.
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The DGFT: Kindly send representation to the Ministry of Chemicals and a copy mark to DGFT.
Participant: There is no proper coordination between O/o DGFT and Customs for the process of verification of Shipping Bills under DEPB.
The DGFT: There is a Help Desk set up in the headquarters of DGFT specifically to take up these issues. Ms. Sangeeta Singh, Jt.DGFT is heading this Desk. This desk is also having assistance from FIEO staff. Exporters are requested to bring their problem to the notice of Help Desk. If it is not resolved, the exporter can bring the case to the notice of DGFT.
