October 18, 2011

Executive Summary

Task Force on Transaction Cost

Constitution and mandate

On the initiative of Shri Jyotiraditya M. Scindia, Minister of State for Commerce and Industry (MoS-C & I), the Task Force on Transaction Cost was constituted by the Department of Commerce under the orders of Hon’ble Commerce & Industry Minister Shri Anand Sharma in October 2009, with a mandate to identify and suggest ways to achieve significant improvement in efficiency of our export processes in order to reduce money and time spent in exports by the exporters and to improve the ease of business and ultimately the competitiveness of Indian exports.

MoS(C&I) Shri Jyotiraditya M. Scindia, headed and continuously guided and reviewed the work of the task force. The task force was led by Shri R. S. Gujral, Director General of Foreign Trade (DGFT) and later by Dr. Anup K. Pujari, DGFT.

The task force was organized by MoS (C & I) in a structured way, with clear division of responsibilities, with a Project Management Group (PMG) as the focal point of coordination between the large number of stakeholders involved. The PMG comprised of government officials, as well as one representative each from FIEO, FICCI, and CII to ensure close coordination between the government and the private sector in the working of the task force.

The task force also included a large ‘Group of Experts’ that included industry experts from six sectors (viz. Agriculture, Chemical, Ready made garments, Textiles, Engineering and Leather) that are major contributors to exports, and functional experts from six different export functions (viz. Custom house agents, CA/tax experts, Exim consultants, Export Managers, Logistics managers and Overall experts).

Scope of work and Transaction Cost Estimates

The scope of work of the task force covered all parts of the export process, from procurement of raw materials to physical exports and post-export procedures, across all ministries. The task force based its work on a quantitative approach so that the important issues and initiatives can be prioritized and their implementation tracked.

The current estimates of Transaction costs are primarily drawn from the World Bank Doing business report. Accordingly, the magnitude of transaction cost in exports has been estimated to be approximately US$ 13 billion. This comprises of a roughly equal fraction of structural cost and addressable transaction cost, i.e. US $ 6 to 7 billion.

Methodology

To extensively analyze the export process and the associated inefficiencies, the task force held detailed structured discussions with industry experts from six major industry groups and six major export functions. It identified stakeholders from various agencies and ministries involved in the export process, to discuss and fine-tune the findings and take forward their implementation. Finally, the task force undertook a number of field visits to understand the realities on the ground, and also undertook a global benchmarking visit (Singapore and Denmark) to understand the best practices in export procedures from other countries and examine their applicability to the Indian context.

Issues Identified and Recommendations

Based on the expert interactions, stakeholder discussions, and global benchmarking visits, over a hundred issues were identified and the associated solutions suggested. These were then analyzed and prioritized according to their importance and ease of implementation. The Task Force identified 44 issues across 7 line Ministries for action. The issues were then taken up with the relevant Ministries and extensive consultations were held. After consultations, Ministries agreed to implement 32 issues.

Out of the 32 agreed issues, 21 issues have been implemented and 11 issues are under process of implementation. It is expected that with the implementation of above 21 issues and further 2 issues pertaining to filing of a single running bond for all Custom locations and refund of service tax in the form of All Industry Service Tax rate which are likely to be implemented in near future, the transaction cost will be mitigated by approx. Rs. 2100 crores. Permanent reduction of transaction cost through these initiatives will have a long term positive impact on the competitiveness of India’s exports. The PMG is pursuing implementation of the remaining agreed issues as well, so that competitiveness of India’s exports can be continuously improved.

Download  Report of Task Force on Transaction Cost in Exports

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