Duty review hits exporters as they battle rupee's rise

The ongoing review of the Duty Entitlement Passbook (DEPB) scheme rates would be a big blow for the export industry even as it struggled hard to combat the rising rupee, leading exporters said.

The review to trim rates to original levels, expected to be completed in three weeks, is the result of a tug-of-war between the ministries of commerce and finance.

The finance ministry had opposed the commerce ministry's hike of 3 per cent to 8 per cent for nine sectors, including textiles, marine products and leather and by 2 per cent for others.

The government had hiked the DEPB scheme rates last June, thanks to a sharp increase in the value of the rupee.

According to sources, the commerce ministry has asked various export organisations and associations to submit facts and figures that strongly defend the hike, otherwise it would be withdrawn.

A top official from the marine products export industry said they were already in receipt of a letter from the commerce ministry and once the rate hike is withdrawn the industry would be in deep crisis.

Leading exporters said the government was destroying the export sector by withdrawing the benefits they had announced earlier.

Most of the sectors are now operating in a weak dollar regime, expecting the hike in DEPB Scheme rates.

A leading marine products exporter told Business Standard that the government's move would create a grave situation in the sector as a major chunk of exporters had procured raw material from abroad, anticipating the duty benefits.

"We have worked out the costs and mobilised raw material anticipating the 3 per cent hike in DEPB rates. The move to trim the rate to the original level will really 'kill' the industry which is reeling under pressure due to the depreciation of the dollar," he said. Although the quantum of the loss cannot be quantified as of now, the loss to the marine products sector will be huge, sources added.

The DEPB rates were hiked after the finance ministry increased the rates for duty drawback scheme by up to 3 percentage points and decreased the interest rate on export credit by 2 percentage points.

The duty drawback rates were increased after a prolonged study by a committee chaired by Saumitra Chaudhuri, a member of the Prime Minister's Economic Advisory Council.

A major concern of the finance ministry is that the revenue implication of the hiked DEPB rates is between Rs 700 crore and Rs 800 crore.