In the run up to the Exim Policy, to be announced by Union Commerce Minister Kamal Nath on April 2, the pharmaceutical exporters in the country are pressing for the continuation of DEPB (Duty Entitlement Pass Book) scheme which, they claim, has been a time-proven instrument to help Indian export grow to the present level. As per the government notification, the DEPB scheme that was introduced by the central government way back in 1997 is to expire on March 31 this year.
The Pharmaceutical Export Promotion Council (Pharmexcil), a body representing the pharma exporters in the country, made a detailed presentation in this regard to Planning Commission Member Anwarul Hoda at a meeting held in New Delhi recently, stressing the need to continue this time tested scheme for the benefit of the pharma exporters in the country till equally useful alternative arrangements are made by the government.
Making the presentation, Pharmexcil chairman Dinesh Modi argued that as the pharma industry offers a good opportunity for employment including technical and skilled jobs and more so in view of R&D and medical tourism gaining significance grounds in the country, the government should continue the DEPB scheme to provide a level-playing field to the Indian exporters and compensates for the infrastructural inadequacies.
The DEPB Scheme was first announced by the central government on April 1, 1997 under EXIM Policy 1997-2002. It is an export promotion scheme and envisages grant of DEPB credit entitlement to an exporter at the time of export at an ad-valorem rate notified by DGFT (Director General of Foreign Trade), in relation to FOB value of the export product. The DGFT has so far notified DEPB rates for nearly 2000 export products.
These rates are based on the computation of basic customs duty suffered by the exporters on the inputs listed in the standard input-output norms (SION) applicable to the export product. The crucial feature of the DEPB scheme is that all the inputs listed in the SION are deemed to have been imported and to have suffered customs duties. DEPB rates are finalised by the DEPB committee, chaired by Additional DGFT and consists of representative from Ministry of Finance also. Value caps have been imposed on export products having DEPB rates of 15 per cent or more to curb the tendency of unscrupulous exporters to avail most of the runaway benefits by over-invoicing export.
In its presentation, Pharmexcil argued that since DEPB is the most popular scheme amongst the exporters it should not be replaced by another scheme. Instead it should be further strengthened to support exporters, until there is sufficient reform in the domestic tax structure, which can create the path for a more efficient replacement of the DEPB. DEPB is the only incentive left with DTA exporters to fight against the might of SEZ/EOU exporters because DTA exporters do not get Income Tax benefit in respect of exports but SEZ exporters get it.
Refuting the view that DEPB is not WTO-compliant, the Pharmexcil said the DEPB can be made WTO compliant with adding of one more parameter of control (i.e. CIF value of imports), which will ensure balancing and dilution of WTO criticism. With the effective rate of customs duties going down, the DEPB rates are decreasing and therefore it would be much more difficult for the WTO members to establish cases of subsidization or dumping than earlier, it said.
The pharma exporters also pleaded to the government that it is imperative that a transition period of one year at least must be granted to the exporting community before the discontinuation of DEPB. Testing of the alternative scheme (to be introduced) must be done before doing away with the DEPB scheme.
The Pharmexcil also asked the government to ensure that the alternative scheme must include not only customs duties but also all types of taxes and duties including infrastructural inadequacies and transactional costs suffered in the course of manufacture and exports.