The irony is that even as of now, the action taken is too little and too late. It is not that the bureaucracy is not aware of the remaining half of the agenda.

Vide a recent public notice No 10(RE 99)/1997-2002 dated June 7, 1999, it is stipulated that CIF value of imports will not exceed the FOB value against which the DEPB has been issued. This aims at balancing imports with exports in terms of foreign exchange. However, what is being ignored is that this is not a healthy approach because if all DEPBs simply result in neutralisation then what is the benefit to the country in terms of foreign exchange. Are we not promoting exports to earn foreign exchange? Can this poor country otherwise be used as a sourcing base for subsidising the developed world? Are the western countries then not right in imposing countervailing (anti-subsidy) duties.

At the time of fixation of DEPB rate, the data called for, has details of value-addition then why should not this scheme be made to run in duty neutral fashion. This would then ensure that the government is not a big looser in the whole game.

Thus against exports of Rs 28,98,000 clearance of Rs 1,15,92,000 was possible. It could have been more/less also. A lot has been written about this but bureaucrats were putting up a brave front saying that this was not a problem because it resulted in import of essentials and eventually balanced by other clearances. However, this charge in stand conveys that their earlier stand was absolutely wrong. They squandered crores of rupees by way of SADD exemption from the governments coffers.

This is whopping 76.72 per cent of the DEPB credit amount. An unintended benefit in any case. For this reason, SADD has been rendered an unmeaningful tax and the tax has proved to be a boon in disguise for exporters at the exchequers cost, Rs 100 DEPB fetches Rs 105. Post June 7, the imports CIF is now restricted to Rs 28,98,000, whereas, as per the value-addition restriction, the same should be Rs 18,21,600 only. Thus still there is a lot of leeway left for exporters to exploit after the change. The job has not been completed. The export promotion authorities should restrict CIF value of imports in inverse ratio of value addition i.e., the DEPB issued against very high value-addition cases should not permit undue advantage. The value addition, which should come to the country as advantage in terms of foreign exchange earnings should remain with the country. Thus a DEPB with two per cent DEPB rate should not be much better than 22 per cent DEPB rate product. This restriction would help in balancing the dutysuffered on export product inputs and duty foregone on utilisation in a more appropriate manner. It would not be still a complete solution because duty rates differ widely. The most appropriate would be duty balancing which is also possible with the data available with the government but there is no will to implement it. Why DEPB should enable lower value addition than QBAL (with far more restrictions and difficult procedures) is the question which needs to be answered for the purpose of comparison?

Further the cost of SADD exemption is very high in itself, when considered individually. The authorities still await a wake up call.

Consider the use of DEPB with duty structure as under:

10 per cent Basic + O per cent CVD + 4 per cent SADD.

The total duty payment then amounts to 15.44 per centon assessable value of Rs 100. However, through DEPB premium payment of five per cent the position would be:

11x1.05 - 11.55.

Thus the saving works out to Rs 3.89 (15.44 -11.55) i.e., 35.36 per cent is foregone by the exchequer (3.89/11.00) in case of essential imports conducted by actual user. This is the cost borne by the government for no reason.

Related to this, another problem is that the manufacturer has to pay octroi duty though SADD is in lieu of state/central sales tax and octroi. If SADD is paid then no octroi should be collected. Secondly, if SADD paid goods have to be sold as such, at any point of time, these goods should not be subjected to sales tax and octroi but then the law does not provide for it.

In DEPB in case of non excisable products, you can claim DEPB and drawback (CVD/excise duty) simultaneously in terms of CBEC circular No.68/97 dated December 2, 1997. If you will calculate, incidence of DEPB and drawback in terms of FOB, then you will understand that this is far in excess of benefit possible either under duty drawback/QBAL. DEPB has, in addition, very import liberal terms. There is not even the condition that DEPB in non-excisable product should be utilised under actual user condition. In case of QBAL there is condition imposed that only CVD payment not excise duty is refundable through export of goods in which these CVD paid inputs are used. This is impossible to operate in case there are several inputs imported at different points of time or you would like to switch over from one scheme to another. Thus there is no parity between the two schemes though the duty to be refunded is the same. The policies lack rationality and work on whims and fancies of officials. In QBAL you disallowed whatis paid to be refunded under replenishment clause and actual user condition (though the government has accepted its folly and restored old position) whereas in DEPB there are no controls whatsoever. What a paradox yet again?

Another dangerous trend which is seen recently is that at the time of verification beyond the mandate of verification, the basic issue of classification is raised even in cases of finally assessed shipping bills. This means that the government has single side authority to punish the exporters alone and not to take action against its own officials who let things proceed up to this stage. More dangerous is the fact that the customs are not interested in making references for final decision to DEPB committee/CBEC, even on written request. There is no grievance redressal mechanism specified. There is no DEPB revalidation possible. Thus the honest exporter is made to bear the brunt of their unbridled authority for no fault of theirs. Lets see this with e.g., exports of polystyrene ruler is effected and DEPB is claimed at the rate of 20 per centas an article of polystyrene. The customs stopped usage of DEPB at the time of verification though the customs agree that if the polystyrene strip was no marked as a rulerthen it would qualify for 20 per cent DEPB. They also say that polystyrene ruler is not a stationery item of office and school. Instead of applying ITC HS classification as specified they adopt customs tariff. As an exporter you take up the matter with CBEC/DEPB committee but that will not be attended to because these fiefdoms discard them as stray cases. What high handedness and what a paradox. Thus honest exporters who would like to do straight forward business are killed for no fault of theirs.

In law there is a premise that justice not only needs to be done, but it should be apparent that justice is done. However, the ministry of finance follows only the second part i.e., they make it appear that loopholes are being plugged but in reality, no action is being taken.

There are many other disadvantages of DEPB and lot has been written about it already so there is no use in repetition. However, most significant to understand is that the wrong policies help unscrupulous exporters, propagate and perpetuate corruption, make life miserable for honest exporters and induce them to turn to dishonesty for survival - which is the most dangerous fall out. The unscrupulous exporters are able to get away with anything because of their illegal earnings. This again reconfirms their faith in evil and sets a bad example for honest exporters. Bad parents are responsible for the bad conduct of a child. Similarly bad policy is responsible for misuse by unscrupulous exporters. Only a transparent and easy to understand and implement policy can solve this problem but there is no will to do it. This would then eradicate corruption, reduce transaction costs and make Indian exports extremely competitive.

I am constrained to conclude that policy-makers have through the various lacunae and misuse arising out of VABAL lacunae and misuse, to be naive and have proved their uselessness through pass book and now through DEPB they are proving to be worser and claiming revalidation of this status by continuing the DEPB for the reason of no alternatives. Though it is a prerogative of the bureaucracy to formulate policy, it is more to be seen as a responsibility and not an unbridled authority to permit looting of the nation. There is a reason for PIL in this respect but even PIL is an expensive and delayed affair. I continue to write in the fond hope that this will exhort the conscious of policy-makers to set things right.

The author is an exim policy analyst

Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.