Govt reconsiders replacing DEPB with duty drawback

The government is taking a relook at its automobile industry-specific plan to replace the Duty Entitlement Pass Book (DEPB) scheme with the duty drawback scheme originally set to roll out next month-end.

The Society of Indian Automobile Manufacturers (SIAM) has undertaken a study to determine reimbursement rates for the automobile industry under the duty drawback scheme which is set to replace the 14-year-old DEPB incentive that the government has been giving exporters. A detailed report is expected to be placed before the Commerce ministry next month, after which a final decision would be taken, a top official of the industry body said on Saturday.

Sugato Sen, senior director, SIAM said the basic as well as customs duties currented amounted to 7-9 per cent of total costs for two-wheeler and commercial vehicle manufacturers. “The DEPB scheme reimburses this component ensuring global competiveness of Indian manufacturers who export their products,” he said. “We are negotiating with the government for the extension of the DEPB scheme until a comprehensive package is determined to replace it.”

According to industry sources, two-wheeler manufacturers such as Bajaj Auto (BAL) and TVS Motor Company, which account for over 65 per cent of the 2.3 million vehicles annually exported from India, are exploring options to import components to sustain export operations profitably.

Said an industry official: “Under the duty drawback scheme, manufacturers would only be reimbursed the customs duty component. Leading two-wheeler makers are now mulling options to import components to avail the cost benefits. This will adversely affect the domestic auto component industry.”

BAL exported nearly a million two-wheelers last fiscal. It is set to double by 2013-14. Recently, Hero MotoCorp, the country's largest two-wheeler manufacturer, too announced plans to export 10 per cent of the 10 million units it aims to sell annually by 2020. Added Sen: “The replacement of the DEPB scheme at this point of time would impact adversely both production and exports plans of manufacturers. Pricing of automobiles are determined on a long-term basis. A nine per cent increase in vehicle costs due to withdrawal of DEPB would hamper prospects in international markets.”

The Auto Component Manufacturers Association said the auto component exports have over the past four years grown at a CAGR of 18-20 per cent. “The sales picked up last fiscal in overseas markets,” pointed out its president, Srivats Ram. “With passenger vehicle sales sliding in the domestic industry and uncertainty in capital markets globally, the withdrawal of the scheme is not advisable at the moment.”

An Ernst & Young report on the Indian auto component industry states that exports from the segment are likely to go up to $29 billion by 2020 -- up from $13 billion of auto components exported in 2009-10. To achieve this target required continued policy support from the government, Ram said.

DEPB, as is applicable on Saturday, is scheduled to be withdrawn on September 30. The government has set up a committee that would seek to replace the scheme with duty drawback. Commerce Secretary Rahul Khullar had earlier said the panel would look at determining rates on a case-to-case basis instead of having a uniform drawback rate for all exporters.