Trade facilitation for ‘Make in India’

The CAG report has highlighted that many well-intentioned policies have been jeopardised by the conflict between trade facilitation and compliance

The ‘Make in India’ initiative to push manufacturing sector growth can only become successful if local firms are part of the global value chain, which will lead to increase in manufacturing exports and technology upgrading. However, much of it depends on trade competitiveness, and trade facilitation is the most crucial one. More so given that India’s exports experienced zero growth last year and domestic demand remains subdued.

Several committees (Kelkar, Task Force on Transaction Cost in Exports) and the vision document of the Central Board of Excise and Customs (CBEC) have identified problems of trade facilitation framework in India and suggested remedies. Trade policies, over the years, have come up with cost-reducing procedures like use of IT for filing applications and making online payments, self-assessment of customs, single-window schemes in customs, etc.

Some latest measures include reduction in the number of compulsory documents required for exports and imports to just three, introduction of prior filing of shipping bills, facility of common bond against authorisations under various export promotion schemes, etc. Despite these initiatives, India lags behind its peers. As per the World Bank Trading Across Borders report of 2015, India stands at 126 out of 189 countries, while China ranks 98, Brazil 123 and South Africa 100. It takes 17 days to export a container while it takes 21 days to import one in India. While in China, the per-container cost of export is $800, in India it is $1,400. Department of Commerce (DoC) estimates that poor trade facilitation results in transaction cost of R42,000 crore ($6-7 billion).

In this context, the recent CAG report 2015—tabled in Parliament—conducted a performance audit (PA) for the period 2010-11 to 2013-14, on trade facilitation measures put in place by DoC and the Department of Revenue (DoR).
CAG finds that filing of Bill of Entry (BE) and payment of duties consumed maximum dwell time (65%) in case of imports while filing of Export General Manifest (EGM) consumed maximum time for exports. As per DoR, such delays are caused largely due to port congestion, lack of timely response from other regulatory agencies, etc. For example, 76% vessels have to wait for two or more days for allotment of berths in the three commissionerates of Kochi, Kolkata and Mumbai. Similar is the case with containerised consignments, which need more than three days for clearance forcing the importer to shell out demurrage charges for storing.

Delays in examination of imported goods and goods for export by customs is a major bottleneck in cargo clearance. Across seven commissionerates, CAG finds that examination of goods exceeding 24 hours is about 22% of all consignments examined. Examination of goods beyond 24 hours has shown an increasing trend. Percentage of examination of goods beyond 24 hours at Chennai sea and air commissionerates rose from 11.27% to 22.42% and 5.87% to 32.76%, respectively, during 2010-11 to 2013-14. Shortage of customs officers of the rank of examiner/preventive officer, non-availability of mobile gamma ray container scanners at some commissionerates, different set of rules for movement of goods in different ports and lack of coordination among agencies have been blamed as primary reasons.

Errors and delays in filing of Import General Manifests (IGM) by shipping agents for declaration of complete list of cargo has been a major contributor in prolonging the dwell time for importers. Incorrect filing of IGM delays processing of BE, which is filed on the basis of IGM, thereby slowing down the pace of cargo clearance. As per section 46 of the Customs Act 1962, BE can be filed prior to the delivery of IGM. But only 25% BEs are filed within 24 hours of filing of IGMs, while 50% BEs are filed after three days. CAG-PA identified delays in obtaining necessary documents from steamer agents, suppliers, incorrect documentation, insufficient funds as possible reasons for such delays.

Imported consignments are subject to inspection and certification by agencies like Directorate of Plant Protection, Quarantine and Storage, Food Safety and Standards Authority of India, and Assistant Drug Controller on the basis of their type, nature, country of origin, etc. Significant delays are observed in obtaining clearance certificates from these agencies due to delays in receipt of applications for inspection by respective authorities, delays in obtaining test results, deficiencies in documents and product-related information submitted by importers, and manual processing of clearance certificates.

CAG observes that trade facilitation is adversely impacted by manual registrations of licences and authorisations—issued by Directorate General of Foreign Trade (DGFT) under various export promotion and reward schemes —with the concerned customs house by importers. These schemes include some important initiatives like Advance Authorisation, Export Promotion Capital Goods scheme, Duty Entitlement Pass Book scheme, etc. In general, such schemes allow exporters to claim duty credits or duty drawbacks on imports of intermediate goods and equipment used for the manufacture of goods for exports. Although such authorisations are transmitted electronically by DGFT to customs, importers are made to register their licences manually by executing a bond with the customs. Data from five customs commissionerates of Chennai, Cochin, Mumbai NCH and JNPT, and Bangalore Air customs reveal that 67% of authorisation and licences took over three days for registration. In general, registration of licences taking time over three days has increased from 58% in 2010-11 to 78% in 2013-14 across customs commissionerates.

CAG highlighted that although many trade facilitating steps have been taken by DoR/DoC/CBEC, the same were not implemented, and that many well-intentioned policies have been jeopardised by what can be called as conflict between trade facilitation and compliance. Trade facilitation comprising of simplification and harmonisation of international trade procedures is key to enhancing India’s export competitiveness, make the country more attractive to investment and also enable it to fully participate in global trade expansion.

The author is associate professor, Institute of Economic Growth (IEG), Delhi University

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