The muchavailed incentive scheme to reward exporters for growth has finally taken off. The Chennai office of the DGFT is the first off the block with the issue of a duty credit entitlement for Rs. 85 crores. Another entitlement for subsequent year growth under the similar Target Plus scheme is under issue. Apparently, the DGFT has gathered the confidence to go ahead with keeping the much broken promise.

There is, however, a problem with DFCE. The corresponding customs notification issued more than two years ago on April 1, 2003 does not provide for Cenvat credit of the debit of additional duty against the DFCE. As a result, the importer, who is an actual user, has to pay the additional duty once again when he uses the material for further production. The full excise duty on the final product must be paid on cash without getting the Cenvat credit on additional duty equivalent to excise duty paid through the DFCE. Thus the actual value of the Rs. 85 crores duty credit entitlement in the example of DFCE issued by the Chennai office is reduced by half, a loss of Rs. 42 crores or so to the exporter.

The mistake should be corrected by the department of revenue by amending the DFCE notification on the lines of DEPB which provides the facility. In fact, the Cenvat credit on additional duty is already available in the parallel Target Plus and the VKUY (Vishesh Krishi Upaj Yojana) customs notifications. The two notifications were issued this year but at that time the department did not amended the 2003 notification on DFCE. Sooner the mistake is corrected, the lower will be the transaction costs to the exporter and importer in getting the benefits of DFCE.

Crude future:

Both NCDEX and MCDEX have launched crude petroleum futures linked to international crude exchanges. An underlying physical delivery is the essential requirement for any future commodities contract. However, in this case, delivery in crude petroleum in India is not possible since import is subject to actual user condition under the import policy. The official import monopolies of crude already have the option to hedge their price risk in international commodity exchanges. Given the globalisation of the commodity and financial market, the government should allow imports of crude freely subject to tariff under WTO rules to make the crude future contracts of the two exchanges meaningful and also provide alternative windows to the users and ONGC/Indian Oil/Reliance monopoly should be exposed to competition. The vast domestic trade in petroleum products should be exposed to commodity exchanges for price discovery.