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CII submits suggestions for the Foreign Trade Policy Print E-mail
Written by Arjun   
Wednesday, 10 June 2009
New Delhi : The Confederation of Indian Industry (CII) demanded extension of the DEPB scheme for long term basis at an interactive session on Foreign Trade Policy and Procedures with Mr G K Pillai, Commerce Secretary, Ministry of Commerce and Industry, Government of India, here today.

The new five years Foreign Trade Policy of India will focus on “trust the exporters”. Various benefits will be given to the exporters to encourage exports, for instance in case of service tax, exporters will now be able to file their returns like that in case of Income Tax, said Mr Pillai.

The next Foreign Trade Policy will be released in first week of August 2009 after the budget. The Government aims to maintain last years export figures of US$ 168 billion for 2009-10 as well, said, Mr Pillai.

Mr Sanjay Budhia, Chairman, CII Trade Committee and Managing Director, Patton International Limited in his address highlighted some of the industry suggestions to help reversing the downtrend in exports.   

He said exporters are now working on thin margins and taxation of the profit leaves exporters with no money for modernization and expansion of manufacturing.

Earlier making welcome remarks, Mr Chandrajit Banerjee, Director General, Confederation of Indian Industry, said, due to the global economic crises our exports are under pressure, hence the Foreign Trade Policy, which is to be announced soon, should focus of building competitiveness of Indian industry that is involved in exports so that it can withstand the pressure which it is currently facing and will face for the next couple of months.

CII suggestions for the next five years Foreign Trade Policy

- Enhance DEPB Rates by 5%: DEPB is a post export incentive, which allows refund of customs duty paid by exporters on items used in the process of production. This duty is refunded on the basis of certain percentage of the f.o.b value of exports.

During 2007-08 when prices of most of the commodities were spiraling, exporters imported raw materials at higher prices thereby paying a higher amount by way of customs duty on the raw material. However, by the time the finished goods entered the market, prices of goods had come down substantially in the global markets. As a result exporters have not been able to get full refund of customs duty paid during the process. In order to mitigate the problem, CII recommends the government to enhance the DEPB rates by 5 percentage points across all sectors.

- Remove minimum 7% ceiling on export credit:  Government had in early 2008 announced a 2% relief in interest rates to exporters of certain sectors on pre and post shipment credit, subject to interest rates not falling below the priority sector-lending rate of 7%.

In the wake of high interest costs even on working capital such ceiling should be withdrawn and 5% interest rate subvention on the PLR should be provided to exporters. This step would bring the interest costs for exporters in India closer to their South East Asian competitors.

- Withdraw Retrospective Amendment of section 80 HHC: During the early 1990’s, to increase competitiveness of exports, Government provided tax incentives to exporters under section 80 HHC.

During 2004-05 however, government withdrew the benefits under section 80 HHC and in February 2005, section 80 HHC (3) was amended, retrospectively. As per this amendment exporters having a turnover of more than Rs 10 Crore were liable to pay income tax retrospectively w.e.f. from April 1, 1998. Exporters feel that the retrospective amendment of Section 80 HHC does not hold water.

CII suggests that with exporters already under pressure because of the slowdown, the retrospective amendment of section 80 HHC (3) should be withdrawn.

- Losses in Derivatives: During April 2007 to June 2008 the Indian Rupee appreciated by 11%. In an attempt to hedge themselves against the rising rupee, many exporters entered into derivative contracts with financial institutions.

Exporters are of the view that the fluctuating rupee has led to substantial losses in derivative products. Exporters estimate the total loss at over 2,000 Crore rupees.

CII suggests Government through RBI resolve this issue with the banks on a no profit – no loss basis.

- Marketing Development Assistance Schemes (MDA): CII suggests that the Marketing Development Assistance Schemes should be reintroduced for all categories of exporters irrespective of their turnover, which will encourage them to participate more in International Trade fairs and exhibitions.

- Focus Market Scheme: In view of the global financial crises, the EU and US should be included in the focus market scheme at least for two years, given the difficult conditions prevailing in these two regions.

- Fringe Benefit Tax (FBT): The Fringe Benefit Tax discourages exporters for aggressively marketing in new and untapped markets; hence, exporters should be exempted from FBT.

- Sunset Clause: Section 10A of the I.T. Act provides income tax exemption to software exporting units operating under STPI scheme. The Sunset Clause under Section10A has been extended till 31.03.2010. Keeping in view the present global scenario, this Sunset Clause should be extended by another three years.

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