Govt to unveil steps to reduce transaction costs on Feb 8

The government is set to announce some significant measures to reduce the high transaction costs faced by the country’s exporters in their day-to-day operations. Finance Minister Pranab Mukherjee will be unveiling the measures on February 8.

The measures to be announced are based on the recommendations of the committee that was formed under Minister of State for Commerce and Industry, Jyotiraditya Scindia. The members of the committee include representatives from the Federation of Indian Chambers of Commerce and Industry (Ficci), Confederation of Indian Industry (CII), Federation of Indian Export Organisations (Fieo) and other experts.

“The measures would seek to reduce transaction cost by as much as 10 per cent of the total value of exports. So we are ideally looking at a reduction worth $17-$18 billion annually,” a senior commerce department official told Business Standard.

The committee was set up in December 2009 to look into some of the persistent procedural problems faced by the exporters in terms of money spent by them in order to follow several complex rules and regulations related to the foreign trade policy of the country.

Some of the measures that are expected to be announced relate to timely refund of credit balance in the Cenvat account, making ports work round-the-clock by bringing them in line with global shipping norms, streamlining of various forms of levies and taxes and reduction in freight costs and port charges.

Exporters are often forced to sign individual bonds with various authorities like customs, central excise, service tax for each ship. Hence, the government is likely to make some announcement in this area also by creating a ‘master bond’- a single bond for all these bodies as they are all electronically connected.

The government might also do away with redundant certification while reducing the exorbitant charges incurred by the exporters due to screening of express cargos and courier services.

“We expect a huge package from the government. Reduction in transaction cost would not only make life easier for the exporters but would also address the government’s revenue leakage issues. There has to be a trust-based system at place if we want to truly increase our share in global trade,” said Ramu S. Deora, president, FIEO.

Deora also said that exporters are made to file several documents to obtain their refund and also for getting necessary approvals with licensing and customs resulting in doubling of their costs.

In the last meeting of the Board of the Trade held in November last year, exporters had asked customs, DGFT, banks, shipping agencies, export inspection agencies, export promotion councils and other regulatory agencies that are involved in the process of export and import should be brought under EDI platform.

“The task force has worked towards a massive reduction in transaction cost faced by the exporters daily. Numerous hurdles were discussed by the task force out of which the deliverables have been identified as the first step because others entailed legislative changes. But even if the deliverables can be achieved, exporters can overcome the high cost and hassles of exporting,” said Amit Mitra, secretary general, Ficci who was part of the committee.

The incidence of transaction costs is high in textiles, followed by chemicals, engineering goods and pharmaceuticals. The most common problem that are faced by the exporters relate to the refund of duty drawback from the government, according to a study conducted by the EXIM Bank on transaction cost based on a survey of 111 firms.

The study also found out that smaller firms that employ large number of people enjoy better profit margins compared to their bigger counterparts because the incur lesser transaction cost such as gems and jewellery industry. However, the capital-intensive industries like engineering and chemical industries face greater procedural delays.