Financial Daily from THE HINDU group of publications
Saturday, Feb 14, 2004
Industry & Economy
Exports & Imports
Cut in DEPB rates may affect engg exports
Coimbatore , Feb. 13
EVEN as the continuous rise in prices of raw materials has been threatening to undermine Coimbatore's potential to emerge as a global hub for engineering industries, the latest notification by the Director General of Foreign Trade (DGFT) announcing a drastic cut in the Duty Entitlement Pass Book (DEPB) rates for a wide range of engineering goods has come as a blow to the engineering exporters from the region.
The cut in the DEPB rates ranges from a minimum of 2 per cent to a maximum of 7 per cent, which the engineering industries fear would erode their competitiveness in the global markets. In fact, they feel the timing of the decision is inappropriate since raw material prices have witnessed a continuous spurt in recent weeks.
Since Coimbatore region accounts for a substantial portion of the export of engineering components, there is a fear that the cut in DEPB rates deprives them of a cushion during harder times.
Speaking to Business Line today, Mr G. Rajendran, President, Southern India Engineering Manufacturers' Association (SIEMA), Coimbatore, expressed surprise over the cut in rates whereas the industry has been asking for an increase in the rates.
He said the DEPB rate provided a level playing field to the exporters and by reducing it, the Government was seriously undermining their competitiveness in the international markets.
He said it was not clear as to what prompted the Government to go for a drastic cut in the DEPB rates, particularly relating to the engineering industry when it was facing a crippling increase in raw material costs mainly in pig iron and metallurgical coke that have registered a 25 per cent to 50 per cent increase in prices in the past six weeks alone.
Besides, there was intense competition in the export market and the importers were not willing to bear any increase in product cost even if that was prompted by an increase in raw material cost.
In a notification issued on February 9, the DGFT, Mr L. Mansingh, has notified revision in DEPB rates for a range of products covering engineering, chemicals, plastics, leather and leather products, sports goods, fish and fish products, food products, handicrafts, electronics, textiles and other miscellaneous items.
Mr Rajendran said in the notification relating to the engineering goods, the DEPB rates have been cut for a number of products which he said would have a major impact on the bottomline of the companies which have a substantial export thrust.
For the submersible water pumpsets i.e pumps, motors, pumpsets and accessories thereof such as cable, control panels and pipes, the DEPB rate has suffered the highest cut of 7 per cent - it has been brought down to 9 per cent from 16 per cent earlier.
While the new rate for submersible pumps is 11 per cent (old rate - 16 per cent), the new rates for others are: break drums made of alloy cast iron - 10 per cent (15); carbon steel forged flanges - 10 per cent (15 per cent); cast iron products (rough/machined) not elsewhere specified - 8 per cent (10); deep well hand pump complete without spares and tools - 12 per cent (18 per cent); deep well hand pump with connecting rods - 12 per cent (18); industrial valves (cast or forged body) - 4 per cent (7); single phase motor -
3 per cent (7) and ferrous automotive products - 3 per cent (5).
The SIEMA President said the Coimbatore region accounted for export of around Rs 1,400 crore worth engineering products such as automobile components, castings, industrial valves, sub assemblies for different industries, pumps and motors and hand pumps during last year and there was an expectation that this would go up to Rs 2,000 crore in the current year. Now the engineering exports from Coimbatore may take a hit.
Mr Rajendran said many of the prominent exporters were passing on nearly 50 per cent of the DEPB rate benefit to the foreign buyers to remain price competitive in the global arena but the DEPB rate reduction would negate this price advantage.
The pumpset manufacturers were hoping for a turnaround on the export front because of the 11 per cent increase in exports witnessed in the first five months of the current fiscal but this may not be sustained in view of the latest decision.
During last year, the industry witnessed a 9.5 per cent fall in pumpset exports at Rs 414 crore compared to Rs 465 crore in the previous fiscal.
He suggested that the Government should either withdraw the notification or keep it in abeyance till the raw material prices stabilised and the international buyers were willing to absorb higher costs due to increase in input costs.
He has also sent a detailed memorandum to the Union Commerce Minister, Mr Arun Jaitley, seeking immediate intervention.
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