DEPB gets a fresh lease of life

It’s official now. Like the proverbial cat, the DEPB (duty entitlement pass book) scheme — a hot favourite of exporters — has got yet another lease of life.

The government is not phasing out this flexible incentive on April 1, ’05 as announced on earlier occasions. If that is not good enough news, here’s some more: Even after the DEPB is phased out finally, exporters need not shift to the duty drawback window.

The government has decided to find a replacement for DEPB, primarily to keep jittery textile exporters, who are yet to fathom the impact of phasing out export quotas at the end of this year, happy and smiling for the time being.

This is not the first time that DEPB has won a new lease of life. On several occasions earlier, the government had set a deadline for phasing out the scheme, but it managed to survive.

Nearly 40% of India’s exports benefit from DEPB credit and this window is preferred to duty drawback which also works on the principle of exempting taxes on all inputs used for exports. While the duty drawback route entails paying duties first and obtaining refunds later, there is no payout in the case of DEPB. Considering the delays and red tape encountered in obtaining duty drawback, exporters prefer DEPB.

Exporters have been urging the government to continue with DEPB, said Rafeeque Ahmed, president of the Federation of Indian Export Organisations (FIEO). The government has conceded our demand and this will benefit the textile and steel sectors in a big way, he said soon after the Foreign Trade Policy was announced.

A top official at the Directorate General of Foreign Trade (DGFT) said that DEPB will stay till a replacement was put in place. Work on the replacement is on and is not likely to take final shape before April 1, ’05. Much will depend on the impact of MFA phaseout on India’s textile sector, he added.

According to official estimates, the revenue foregone through DEPB works out to Rs 1,600 crore in the case of textiles alone. The government is not insisting on shifting exporters to drawback since this window is also considered not compatible with rules laid down by the World Trade Organisation (WTO).

The new scheme that will replace DEPB will be WTO-compatible so that other countries do not allege that the benefit amounts to a subsidy. Exporters prefer to go in for DEPB as the credit obtained from exporting a particular item need not necessarily be used for importing inputs for the export product. Instead, the credit can be used to pay import duty for other inputs.