Export Obligation Period Extended

The Director-General of Foreign Trade (DGFT) has extended the export obligation period up to March 31, 2004, for all export promotion capital goods (EPCG) licences issued under the 15 per cent scheme since 1995.

Under this particular scheme, covered by the Customs Notification No. 110/95 (Dated June 5, 1995), exporters were given five years to fulfil their export obligations, which was equivalent to four times the CIF value of imports. This particular 15 per cent EPCG scheme was abolished in 1997.

To extend the export obligation period, EPCG licence holders have to furnish a bank guarantee covering the proportionate unfulfilled value of export obligation plus 15 per cent simple interest thereon from the date of import till March 31, 2004.

 

Even status holders, like export houses, have to furnish bank guarantees to get an extension. The applications have to be made before August 22 this year.

The DGFT has also regularised the cases in which exports were made under this particular scheme outside the initial export obligation period.

He has also extended the export obligation period till March 31, 2004, for all EPCG licencees affected by the Gujarat earthquake. Those issued licences before 1995 have also been included.

The latest dispensation follows the earlier extensions granted through public notices No. 5 (dated April 6, 1999) and No. 3 (dated March, 31 2001).

Since 1977, the trend has been to continuously extend the export obligation period against a 100 per cent bank guarantee and allowing exporters more time to fulfil their export obligations.

In case of default, the exporter only has to pay a 15 per cent simple interest over and above the duty involved. For many exporters, the export promotion schemes have simply proved to be hassle-free alternative sources of raising finances.

Earlier, the revenue department refused to grant unwarranted concessions to exporters. Now, however, even willful defaulters are leniently handled. However, the question is whether this is good for the economy as a whole.

Exporters, naturally, welcomed these concessions and asked for more.

This year, the government decided to give certain duty free entitlements to service providers and status holders, like export houses. In effect, these duty free entitlements amount to 5 per cent direct cash subsidy to the specified categories of exporters.

If the hawala (i.e. the parallel market in foreign exchange) premium is about 1 per cent and the government gives a direct export subsidy of 5 per cent, it is an open invitation for malpractices, like overinvoicing of exports.

In the nineties, the value-based licence scheme, though welcomed by exporters, encouraged such malpractices. The tough and unimaginative reaction of the government to the malpractices hurt all exporters. Ultimately, the scheme could not be sustained and had to be abolished.

The pampering of exporters was understandable in the nineties, when foreign exchange reserves were inadequate. It is difficult to understand it now, when foreign exchange reserves are embarrassingly high.

Faced with a stagnant domestic market, hit by the decline in agriculture growth, the government is perhaps trying to move towards a growth strategy that is export-led and relies more on the international markets. Whether this strategy of subsidy and concession-led export growth is appropriate is a debatable point.

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