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DEPB rate cut upsets exporters

Textile exporters were, indeed, sad and sore last week. They could not digest the intention of the government in reducing the rates of the Duty Entitlement Pass Book (DEPB). They found absolutely no reason for such downward revision. And so, there were even harsh reactions — just as the chairman of the Apparel Export Promotion Council (AEPC), Mr A Sakthivel, who wrote to Mr L Mansingh, Director General of Foreign Trade: “It seems that this industry does not remain the focus of the government.” He said that the government, on the one hand, is spreading the feel good factor and on the other leaves the garment sector unattended, more so, in this terminal year of quota phase-out. According to AEPC, the duty drawback revision to this extent was unexpected and uncalled for. After a reduction the peak import duty to 20 per cent from 25 per cent and the withdrawal of the Special Additional Customs Duty (SAD), AEPC had believed that there would be no further cut in DEPB. Besides, in the past, such reduction had only been one per cent. But now, the DEPB rates have been cut by 35 per cent for knitted T-shirts and 27 per cent for other important categories. It has recommended that the DEPB rates be revised once again to lower them by just one per cent. Thus, in respect of those items for which the DEPB rates were 15 per cent before, the reduction on February 9, AEPC has recommended the new rate at 14 per cent in stead of 11 per cent now. Also, for others for which the DEPB rates were 14 per cent, the new rates should be 13 per cent, in stead of 9 per cent. This is to protect the exporters from the cash losses arising from their inability to revise their quotes to the importers. Likewise, the Synthetic and Rayon Textile Export Promotion council (SRTEPC) has pointed out that the cuts ranging between three and five per cent on synthetic items would eat into the profits of the exporters. The Cotton Textiles Export Promotion Council (Texprocil) has pointed out that the rate reductions are so high that they cannot be absorbed by the exporters. It has said that the reductions were not justified as the import duty was continued to be paid at specific rates. Besides, the exports of made ups had suffered for over a decade, due to anti-dumping proceedings, it has argued. Another impact of the cut in DEPB rates is the mismatch between the Pakistan supplies and those from India for cotton linens, etc. Pakistan enjoyed zero duty facility. The problem arose because, sticking to the practice of the DEPB rates being revised effective from April 1, the exporters had entered into agreement to sell their products at a rate considering the benefits of the prevailing DEPB rates. Now, with a sudden revision effective from Febuary 9, the government has upset such quotes. Since the industry normally takes 80 days to fulfil the export orders, for the supplies to take effect before March 31, the contracts have already been finalised. So, the exporters are now unable to revise the prices. That means, they have to suffer losses. But, the exporters argue that considering the heavy pressure on their margins, they are already hard pressed for making both ends meet. Also, the strengthening of the rupee has lowered their actual inflow. In some cases like the synthetic items, the exporters have already appealed for an upward revision of the DEPB rates. In stead of doing this, the government has now lowered the rates. So, they have asked for a realistic upward revision.

Texprocil has also pointed out that when the exporters participated in a big way at the Heimtextil Trade Fair in Frankfurt last month, they had finalised a number of contracts taking the prevailing DEPB rates into consideration. The necessary credit was counted while finalising the contracts for the next six months. There was no way such exporters could win through re-negotiation and fulfil their obligations. So, Texprocil wanted the retention of the same rates to enable the exporters to gain. The revision of DEPB rates has affected all exporters — whatever their product is. So, all over the nation, voice is heard pleading for the upward revision once again. Going by this, one wonders what prompted the government to take such a unilateral decision that affects the shipment prospects almost all the commodities and industries. Also, the fact that the DEPB rates would now deprive the exporters of their level playing field should not be ignored. Even if the the government is unable to help the exporters with more facilities, it should not cause problems just like that. Now, the exporters feel that they have been unduly disadvantaged in the global scenario with the duty rates remaining skewed. Given the reality that global business these days is dependent on cost effectiveness, it is imperative that the government set up the right climate for the individual industries to save cost on all fronts. Higher price recovery is not all that possible in a competitive environment. So, a realistic DEPB rate would help the exporters save on cost and hence bring about the much-needed competitiveness. In this, the government has a responsibility to help the exporters and does not have a right to play with their fortunes. The global business cannot be subject to such vagaries as elections.

P S Sundar