Mumbai, Feb 23: The capital-goods sector has urged the Government to accept the Verma committee recommendations, especially the one on providing domestic industry access to deemed export business opportunities within the country. This can be done by extending full benefits under the Exim policy.Such indigenous supplies, the committee avers, should also be taken into account towards fulfilment of the EPCG export obligations. The capital goods sector says that this recommendation is "a wholesome proposal" that needs to be implemented in the larger interests of the industry and economy.
For the record, the benefits under para 10.3 of the Exim policy include no special import licence/advance intermediate licence, no duty drawback and no full refund of terminal excise duty. Domestic industry is, therefore, faced with a cost disadvantage of 25-40 per cent vis-a-vis direct import of finished products by users.
A major portion of this cost disadvantage is on account of the inverted customs duty structure. For instance, while local producers import their raw material -- steel -- at an effective import duty of 41.2 per cent, the users (ONGC, OIL, Gail) can import finished capital goods by paying concessional effective project import duty of 30 per cent. In addition, local makers can import consumables and tools at a much higher effective import duty of over 60 per cent.
The BP Verma committee appointed by the finance minister to revive the capital goods sector recognised this lacuna. The panel recommended:
Effective import duty on steel when imported to manufacture capital goods to be fixed at 20 per cent; A price preference of 10 per cent to be reinstated for such supplies; Other deemed exports as per para 10.3 of the Exim policy.Though the EPCG scheme is primarily meant to promote physical exports, under the present circumstances, when the domestic and international markets are in a state of "considerable turbulence", local capital goods manufacturers are fighting for their survival. Million of jobs are also at stake and this malaise could worsen in the days to come.
Thus, under these difficult circumstances, the industry reiterates that it is imperative for the commerce ministry to take a broader view in the larger interests of the domestic economy. While policies should be stable, they should not be rigid, manufacturers say. The policy framework must be flexible in order for it to remain in tune with and responsive to the realities of the day. This, the industry adds, is the approach of progressive governments all over the world.
In this case, if the EPCG licence holders are permitted to offset their export obligations through deemed exports with all the benefits, it would lead to:
more business for the domestic industry contributing to better capacity utilisation, foreign exchange savings, ensuring employment etc. foreign exchange saved would be equal to that level which would have been earned through exports. In any case, forex earnings through exports in the current scenario of severe global turmoil is, to a large extent, notional and therefore "not attinable." domestic business that is currently enabling foreign manufacturers to fill up their excess capacities will be gainfully diverted to domestic industry which will be in the "national interests."The industry has cautioned that if the commerce ministry does not accept the Varma committee's suggestions, there will be large unfulfilled export obligations which will "needlessly add" to the ministry's already overburdened administrative mechanisms. Each case will be dealt with on an individual basis, which, in turn, will bring in strong discretionary elements and pressures.
The capital goods sector, therefore, believes that the commerce ministry should adopt a "realistic approach" and agree to a change in policy as has been suggested by the Verma committee in the interests of reviving the industry, boosting industrial production and contributing to overall economic revival.
The change in policy, observers say, should be limited to only those deemed export projects involving international competitive bidding which are denominated in foreign exchange. This will ensure that there is no forex loss to the country and, on the other hand, could actually contribute to increase in exports.
The industry has reiterated that what is required is for the Government to accept that deemed exports that are denominated in foreign exchange are, in fact, as good as physical exports. This is more an issue of mind-set, experts say. According to them, it must be appreciated that "exports need not necessarily cross the borders of the country. As long as sales realisations are in foreign exchange, these supplies should be given the same treatment as exports and should qualify for exactly the same benefits."
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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