The Telegraph
Since 1st March, 1999
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Small units may find it easy to import inputs

New Delhi, July 18: The government is likely to roll back the requirement of a 100 per cent bank guarantee that small scale industries are required to furnish for the import of inputs or capital goods on the basis of an advance licence against future exports that they are committed to make.

Commerce secretary Deepak Chatterjee is reported to have taken up the issue with the finance ministry as small scale industries were finding it difficult to provide a bank guarantee which is large enough to cover the full value of the duty saved while importing goods against an advance licence. These units had complained to the government that as a result they would not be able to avail of this incentive and this, in turn, would have an adverse impact on their export performance.

Joint secretary (drawback) S.S. Renjhen told The Telegraph that the finance ministry was looking into the matter so that some concession could be given to the small scale sector.

However, he said the stringent clause had been introduced recently as some exporters had been caught misusing the advance licence scheme.

The directorate general of revenue intelligence had detected a Rs 200-crore scam involving “exporters” who were misusing the advanced licence scheme. Most of these unscrupulous elements were importing brass and tin scrap on the basis of advance licences taken against a commitment to export goods made with these inputs.

However, after bringing in these duty-free imports, they sold them in the domestic market to make a fast buck instead of using them as inputs for exports.

A senior customs official told The Telegraph that these firms “just vanish after importing the duty-free goods and do not export anything at all.”

However, the current thinking in the government is that genuine exporters are being hit because of some black sheep. With the rupee steadily increasing in value vis-a-vis the dollar, Indian exports are also becoming more expensive. There is a danger that they could become less competitive. Hence it is felt that some relief is required for the small scale sector.

The larger export houses which have a recognised star status for their export performance were not brought within the ambit of the 100 per cent bank guarantee as they had a proven track record and could not be suspected of misuse of the advanced licence scheme.

While the country’s exports have grown at around 20 per cent during the first two months of the current fiscal, senior commerce ministry officials feel that there is no room for complacency. The volume of Indian exports is still far lower than the Asian tigers like South Korea, Thailand and Singapore.

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