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Scindia needs to do more on transaction costs

By TNC Rajagopalan
February 14, 2011 18:58 IST
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The report of the task force to reduce transaction costs in exports, released last Tuesday, has recommended certain measures that are expected to save Rs. 2,100 crore (Rs. 21 billion) for exporters every year.

This amount represents about 0.02 per cent of India's exports and has to be placed in the context of the finance minister's statement that exporters suffer transaction costs to the extent of 7-10 per cent of exports.

According to the Minister of State for Commerce and Industry Jyotiraditya M Scindia, who led the task force, of the 44 issues identified, closure has been achieved on 23.

Some of these relate to standardisation of charges across ports, rationalisation of freight rates charged by the Container Corporation of India, single-window facility to business users in place of the present method of going to the independent systems of each partner agency in the e-Trade project, extension of single-bond facility for Customs, upgrade of facility at plant quarantine stations and its availability round-the-clock at select Customs stations, reduction in screening charges for air cargo and express cargo, reduction in charges for booking foreign currency, pre-shipment credit in foreign currency at lower rates, etc.

The commerce ministry is yet to make available the entire report on its website, but it appears from the salient features that while Scindia seems to sincerely believe that all the efforts made by the government towards export promotion schemes and stimulus packages will not yield the desired results, unless we are able to substantially cut down transaction costs that impede efforts, the members of the task force did not adequately support him and the reference framework before the task force was also too narrow.

Exporters incur transaction costs not only in transportation of goods to various destinations and dealing with banks, but also in complying with various laws and procedures, besides meeting onerous documentation requirements.

In fact, the costs involved in getting the benefits of various export promotion schemes are very high. At every stage of obtaining excise rebates, refunds of unutilised Cenvat Credit, verification of duty credit scrips, proving discharge of export obligation, release of bonds furnished to Customs, fixation of input output norms or brand rates of duty drawback, etc, exporters have to grease the channels to get their work done.

The task force apparently did not address the policy issues, legal dispensations and documentation requirements that impose heavy costs in such essential processes. Scindia must appreciate that the decision to do away with the submission of hard copies of Duty Entitlement Pass Book EDI Shipping Bills for issuance of DEPB Scrip in case of online digitally-signed applications is a welcome measure, but the question must be asked whether it is necessary to issue the DEPB scrip at all.

The DEPB scheme involves credit, debit and transfer. Can these activities not be managed online, just as banks manage accounts of their clients, doing away with any need to issue the DEPB scrip in the first place?

Scindia has hinted that the efforts to lower the transaction costs will be an ongoing process.

If he is serious, he should not hesitate in putting under scanner the policies and procedures besides legal dispensations and glitches that enhance the scope for discretion and delays at the operating levels.

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TNC Rajagopalan
Source: source