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Govt may hike DEPB, drawback rates only for select exporters
July, 12th 2007

The governments relief package for exporters hit by the rising rupee is likely to go to sectors such as leather, textiles, marine products, handicraft, carpet, agriculture and plantation products.

For, these sectors use over 85% indigenous inputs. Official sources said the government was planning to increase duty entitlement pass book (DEPB) and drawback rates for these sectors, as not more than 15% of their output comprises imported inputs.

The government has already announced a slew of incentives, including increasing DEPB and duty drawback rates by 5%. But this would be a temporary measure to offset the losses incurred due to the strengthening of rupee, an official said.

But sectors, which are dependent heavily on imports are not likely to get much relief as they have already received some sort of respite in terms of cheaper imports due to rupee appreciation.

The rising rupee is estimated to result in around 40 lakh people being laid off and exporters losing about Rs 40,000 crore. This year, the rupee has risen nearly 10%so far. It traded at Rs 40.38 for every dollar on Wednesday.

Sigh of relief
Leather, textiles, marine products, handicrafts, carpet, agriculture and plantation products are some of the sectors hit hard by the rising rupee
The government has already announced a slew of incentives, including increasing DEPB
and duty drawback rates by 5%
Sectors dependent on imports are not likely to get much relief as they have already received some sort of respite in terms of cheaper imports
The gems and jewellery sector may also get some relief, as it was affected after the US withdrawn the generalised system of preferences (GSP) scheme recently.

The sectors competitiveness was hit as the scheme allowed duty-free imports in the US.

The government has just completed the annual review of DEPB and drawback duty rates, based on changes in the import duty in the Budget. The exercise is complete and we will soon see a reduction in the DEPB and duty drawback rates, the official added.

There were also discussions on imposing a cess on imports as most of the items are below the bound rates. Only wines and spirits, palm oil and some agri products are above bound rates and, therefore, the government can impose a cess on imports, the official said. The finance ministry is, however, unlikely to impose such a cess as they suspect that such a move would fuel inflation, sources said.

The finance ministry is also silent on giving service tax exemption to certain export-related services, announced in the Foreign Trade Policy.

The commerce ministry, on its part, has announced expediting refund of certain taxes and reducing the premium on insurance cover on exports by 10%.

Arrears of terminal excise duty and central sales tax reimbursement will be cleared soon. It has also recommended to the finance ministry that the rate of interest on pre-shipment and post-shipment credit be reduced for exporters to 6%, from the current 9-11%.

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