Presentation on Merits of Continuation with DEPB Scheme

To: Shri Anwarhul Hoda Member- Planning Commission Government of India.

Presented by: Mr. D.B.Mody

Chairman of Pharmexcil on 19.01.07

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EXPORT PERFORMANCE (US$ in billion)

2001-02 2002-03 2003-04 2004-05 2005-06 2006 -07

(Apr. – Sept.)

2.10 2.65 3.27 3.98 4.81 2.70

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PROJECTIONS (US$ in billion)

2006-07 2007-08 2008-09 2009-10

6.26 8.14 10.58 13.76

GROWTH

30.00 % 30.00 % 30.00 % 30.00 %

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About Drugs & Pharma Industry

Pharmaceutical Industry contributes significantly towards the country’s total exports.

Achieved export growth of 90.47% during 2000-01 to 2004-05

This industry offers good opportunity for employment including technical, skilled jobs. More so in view of R&D & Medical Tourism gaining significance

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DEPB Scheme – Most Popular Scheme –

Why?

DEPB Scheme has been a time proven instrument to help Indian export grow to present level

It is easy & simple to understand, operate & implement

The cost of other Duty Exemption & Remission Schemes is high – A study will very well establish this

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DEPB Scheme – Most Popular Scheme –

Why?

Raw materials sourced from local industry• Local industry is encouraged &

strengthened• Strong local industry – A must for

development of exports & the country’s strength

DEPB Scheme does not insist on import content requirement

Only scheme that is used SSI/SMEs

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Reasons for continuation of DEPB scheme

DEPB is the most popular scheme amongst the exporters & therefore should not be replaced by another scheme but should be further strengthened to support exporters, until there is sufficient reform in the domestic tax structure which can create the path for a more efficient replacement of the DEPB

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Reasons for continuation of DEPB scheme

Indian Rupee is becoming stronger & stronger day by day – 1USD = Rs.44.18 (on 17th Jan. 2007) & expected to breach the Rs.44.00 level shortly. Exporters will loose heavily on account of strengthening of the Indian Rupee.

DEPB scheme has delivered results over the period of time.

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Reasons for continuation of DEPB scheme

DEPB scheme provides a “LEVEL PLAYING FIELD” to the Indian Exporters & compensates for the infrastructural inadequacies

DEPB is a Drawback substitution system & therefore Drawback is not at loggerheads with DEPB

DEPB is the only incentive left with DTA exporters to fight against the might of SEZ/EOU exporters because DTA exporters do not get Income Tax benefit in respect of exports but SEZ exporters get it

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Reasons for continuation of DEPB scheme

Taking away DEPB benefits will be a severe blow to DTA exporters

Even SEZ exporters depend upon DEPB to a large extent for their competitiveness since SEZs also eligible for DEPB benefits

The outgo in terms of DEPB will now start declining because of shift of exports to SEZ units & DEPB rate being lowered on account of reduction in Customs duties. In effect the scheme is now stabilizing in terms of outgo to the Government

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Reasons for continuation of DEPB scheme

DEPB can be made WTO compliant with adding of one more parameter of control (i.e. CIF value of imports), which will ensure balancing & dilution of WTO criticism

With the effective rate of Customs duties going down, the DEPB rates are decreasing therefore it would be much more difficult for the WTO members to establish cases of subsidization or dumping than earlier.

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Reasons for continuation of DEPB scheme

DPB is well suited to the needs of small exporters since it is not feasible for them to effect imports on their own account as economic volumes are not generated

DGFT / MOF has appropriate database to run the scheme in a more meaningful manner & effect changes as & when required

Survey will suggest that number of cases brought against the DEPB & decided against the Government will be evidence enough to continue with the DEPB Scheme

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Reasons for continuation of DEPB scheme

There is no reason to fear the WTO & DEPB can be traded with reduction of subsidies on Agri. Products by the developed world

Exports take place on a long term planning basis. Most commitments that are already been given by the exporters will fall apart since the export costing has been arrived at taking DEPB in to account

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Reasons for continuation of DEPB scheme

Free Trade Agreements with ASEAN and other countries duties will be reduced hence DEPB benefits will also reduce accordingly

No other Duty Exemption & Remission Schemes covers infrastructural inadequacies

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Reasons for continuation of DEPB scheme

It is imperative that a transition period of one year at least must be granted to the exporting community before discontinuation. Testing of the alternative scheme to be introduced must be done before doing away with the DEPB scheme.

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WTO Compatibility – At what cost?

It appears that striving for full WTO compatibility as interpreted by the EU and US, though arguably desirable, cannot be an impediment to the growth of Indian exports

India’s federal structure has a myriad of indirect taxes levied numerous authorities

The Indian exporters comprise of truly global industrial units at one end, and small enterprise at the other

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WTO Compatibility – At what cost?

Indian exporters need full & efficient re-imbursement of indirect taxes incurred in the course of exports

This requires a series of options for the exporter to choose from, which ideally suits their specific needs

India is an Annex VII Country and is not required to phase out export subsidies

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WTO Compatibility – At what cost?

There is no express prohibition on the approximation/averaging of taxes which forms the basis for re-imbursement of taxes

The number of countervailing cases are few and levied by a few countries

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Need of the Hour?

Continuation with the DEPB Scheme till alternative scheme is tested at least for a year

Ensure that alternative scheme must include not only Customs Duties but also all types of taxes & duties including infrastructural inadequacies & transactional costs suffered in the course of manufacture & exports

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Need of the Hour?

The Offices of DGFT must be permitted to continue to monitor & administer the scheme

Administration & monitoring of all Export promotion scheme should be left to the Offices of DGFT only in view of their better understanding of exporters’ problems

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THANK YOU!