RESTORING DUTY DRAW BACK ON BRANDED RICE--COMMENTS

RESTORING DUTY DRAW BACK BRANDED RICE--COMMENTS

Duty draw back (DDB) nomenclature has been used by the Govt of India (GOI) to offset impact of local taxes and duties on the exporter because local levies are not meant to be exported as that affects international competitiveness. The easy way out is to notify a flat DDB rate since labyrinth of Indian central and state taxes are too intricate to be calculated.   For agro commodities the latest rates for 2014-15 are—

The above chart shows that rice enjoys Nil DDB. Now The Business Line of 12the February 2015 carries a report of restoration of DDB of unknown percentage linked to the principle of “branding”.  In Basmati rice, India enjoys a monopolistic status, but some exporters have worked hard to build the brand like “India Gate”, Tilda, Kohinoor, Daawat and some more.  They have been pleading with the Government to subsidize their expenses for branding a “made in India” product.  

Since the Govt order has yet to be notified, full details-- whether this is applicable to the entire spectrum of rice exporters (basmati+non-basmati) or will be brand specific, cannot be confirmed. Federation of Indian Export Organisation (FIEO), which falls under the Deptt of commerce, has already stated that DDB should be extended on pan-India basis to all rice exporters rather limiting to a few companies. FIEO’s views are logical as branded rice in any case fetches higher premium than other exporters while local taxes are equally applicable to all shippers.

Another perceived anomaly for large cross-section of rice exporters is that the buyers require their own branding e.g. Tiger Rice or Golden Rice or White Rice etc., rather than the brands registered in India. Should the DDB be defined or limited for Indian registered brands of Basmati rice, the Government order will be discriminatory and discretionary, lacking transparency. It will fail in judicial review if any rice exporter knocks at the door of a High court. It is obligatory upon the authorities for desisting from issue flawed orders.

From the WTO perspective this will be deemed a subsidy, while it is not in the real sense. Since DDB is not likely to exceed 1% of fob value, it will be merely $10-$14 pmt for Basmati and $3-$4 for non-Basmati rice which should not worry WTO of distortion in market prices.

If this bothers WTO then the DDB concept will have to be dispensed across the board for all above listed agro items. It will open a Pandora box on DDB.