The one-year extension will provide exporters with some relief as the scheme, till now, was being extended by a few months at a time creating an uncertain business environment.
The DEPB scheme, which cost the exchequer Rs 9,671 crore in 2005-06, is the most popular reimbursement scheme for exporters. The scheme is aimed at compensating exporters for the customs duty paid on imported inputs.
However, because of its non-transparent nature, the DEPB scheme is incompatible with norms of the World Trade Organisation, of which India is a signatory. In fact, the EU has taken action against certain exports from India because of the DEPB payments made to exporters.
The commerce ministry, therefore, devised a new scheme to replace the DEPB scheme which was to compensate exporters for state taxes, including electricity tax & petroleum/diesel tax and Central sales tax.
The law ministry, however, objected to it on the ground that since it would involve the Centre compensating exporters for state taxes, it required a change in the existing laws.
The matter was then passed on to the Cabinet. The CCEAs deicision to extend the existing scheme by one more year shows that the Cabinet too feels that the new scheme does not abide by the existing laws of the country.
The duty reimbursement scheme second on the popularity list is the advance licence scheme involving claims worth Rs 8,851 crore. The total burden to the exchequer for all export-linked drawbacks scheme was to the tune of Rs 35,428 crore in 2005-06.