Rajiv Gupta

DGFT exists as on date & the DGFT is the policymaker & Customs simply an implementer. However, under the new GST regime, there seems that the authority of the DGFT is totally undermined as if that authority does not exist anymore. However, it appears that the DGFT in itself has brought upon them this situation. The moot point is that after being the policymakers for decades & being put to test in terms of countervailing duty cases under the aegis of the WTO, there are no lessons learnt. The moot question is that can manipulation be termed as export promotion & how does it serve the interest of Indian exporters. Those who have been in exports will remember the good old Special Import Licences (SIL) issued in the past but then they were reduced to dust mainly because of the oversupply. The DGFT did not give up & resurrected them to settle the shortfall in FOB value of exports. In the intervening period, those who were in the know of impending change made a quick buck. Both the oversupply of the SIL & resurrection were manipulation but then nobody cares. DEPB was another manipulation introduced in the system by allowing SAD exemption & the DEPB of Rs. 100 could be sold for as high as Rs. 150. They introduced caps for the distribution of DEPB entitlement & then they relaxed it specifically in respect of the select brands approved by the DGFT to put money in the pockets of select few. This was again a deft manipulation. Then the DGFT brought in the Target Plus scheme with loopholes to be manipulated at will & the exporters are not over with the troubles as on date also. Subsequently, they bought in the Status Holders Incentive Scheme (SHIS). Once again, the manipulation is clearly visible because the scheme was designed to serve the purpose of select few because the benefit of credit was resulting in excessive credit in Cenvat account by buying scrips at throwaway prices. The manipulation was introduced by making the entitlements transferable within the status holders. Then came the Chapter 3 entitlement schemes such as FMS/FPS etc. The Chapter 3 entitlements were permitting Cenvat credit of the CVD & SAD whereas the same was not allowed in case of SFIS. The discrimination was simply manipulation. This was replaced by MEIS & the MEIS permits entitlement in respect of countries known for money laundering & having population of 10 Lakhs. Even in case of SIES, there is manipulation carried out by allowing the Cenvat credit of the CVD & SAD not allowed hitherto with transferability. Once again the manipulation of the policy to benefit a few is distinct & visible. Thus manipulations at will by the successive DGFT’s has been the hallmark of the Export Promotion policy & the MoF has failed to stop this. I remember all this very distinctly while scripting this article because I had written about it from time to time & the officials were forced to take appropriate action to plug the loopholes. All this while, the policymakers have pretended that they did not understand the implication of the policy put in place to promote exports  but then it is for all to see. Policy is a strategic decision & it need not change very often.

I have gone through the FAQ issued by the DGFT in reference to the new GST regime w.e.f. 01.07.17. It is pertinent to point out that if the DGFT has prepared the FAQs then the Foreign Trade Policy is already prepared because these FAQs can only be based on the FTP & without that these FAQs cannot be legally valid as such. Therefore, it is very intriguing that why the DGFT is not interested in putting the FTP in the public domain so that the exporters are in a position to devote some time to study the same & take an informed call. I recall what the FM pointed out to the GST users that they knew it that the GST is coming so that they should have been prepared & therefore no excuse is possible. I can very well understand the compulsions to stay with the 1st July deadline even if results in a chaos like in the case of demonetization in the early part of it because of failure to implement logistics for re-monetization because prolonging the period will affect the economy adversely. However, it is significant that this applies the other way round also equally. The MoF was the initiator therefore they too knew & they should have allowed adequate time to the users by putting everything in public domain well in time. The DGFT as well as the Drawback Directorate knew the impending change being brought in by the GST therefore the DGFT should have put the FTP in public domain well in advance. As pointed out as evident by the FAQs, the FTP is in place therefore what is the fear of the DGFT in unveiling the FTP? Please note that the 100% EOUs as well as the SEZs are specially crafted schemes to promote exports & will undergo sea change therefore the exporters definitely need adequate notice to come to terms with the changes. Any suspense or delay does not inspire confidence in the users whereas transparency & putting things in public domain inspires the required confidence.

Coming to the issue of manipulations, there is a massive manipulation in the offing. This is in respect of the MEIS & SEIS scrips lying with the exporters or to be issued to the exporters in respect of the exports conducted up to 30.6.2017. These scrips were valid for payment of any customs & excise duties & service tax etc. but now the same would be restricted for the payment of Basic Customs duty. This effectively means that the scrips cannot be used in relation to the services imports at all therefore what happens to the nexus is a very difficult question to ponder & answer. Further, please note that if the scrip can be used only for the BCD then the benefit flowing out of the Cenvat credit also stops. This effectively means that the massive amount of MEIS & SEIS scrips lying with the exporters are going to loose in terms of demand & consequently the premiums will go down drastically. It is not possible that the DGFT is not aware of this serious issue but then no solution is offered as on date. Why such a situation should prevail on the part of the GoI when the government is fully aware & obligated to take care of such eventualities. Please note that the scrips are issued in lieu of cash entitlements therefore they are cash equivalents. This was accepted by the GoI particularly the DGFT because otherwise these scrips were unduly working in favour of the imports. Therefore, why there is a midnight change in the stand of the GoI/DGFT without putting up any explanation in the public domain. Why the exporters should be put to severe losses by way of reduced demand & premium in respect of these scrips. Why the GOI/DGFT has failed to adequately address this issue. Again history tells you that there is a very easily implementable solution. The solution is that the GoI buys back these scrips at their full value so that the exporters do not suffer. If there is DGFT existing as on today then the DGFT should take care of the exporters for one last time because in the new regime this office may not exist independently anymore.  Please note that this is a massive & serious legacy issue as well as for the future because it means what will the exporters do with a useless price of scrip in the future.

Another serious problem to my mind is the level playing field. All the authorities cry hoarse about it but remain oblivious to ensure that when it sits on their shoulders as responsibility. The SEZs have been given all the benefits possible under the sun to promote exports. No issues about that. The SEZs get the MEIS & SEIS & they have no other option but to offload further adding to the problems of the DTA exporters. Just think of it, how there is a level playing field between the DTA exporter & the SEZ unit?

The FTP is an important instrument for the development of the economies as evident from the several examples such as Japan, Korea, China etc. Everyone is competing for the same pie therefore we cannot squander advantages by creating frequent disruptions. At the very least, the policy makers can play a very active role & take the beneficiaries into confidence & put things in the public domain for a healthy discussion & work out the best solutions. It is futile to rely on the babus sitting in the air-conditioned chambers & who have not conducted a single naya paisa worth of export. There has to be a perceptible change in the manner in which the public administration is handled in this country if we are really serious.

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December 2020