Arun Goyal | 23 May, 2006
The
Directorate General of Foreign Trade released the details of Gram Udyog
(GU- Village Industry) portion of the VKGUY (Vishesh Krishi and Gram
Udyog Yojana - Special Agriculture and Village Industry Scheme). Under
the GU list, 24 export products have been notified. The export of these
will get the five percent VKGUY incentive for shipments on or after 1
April, 2006.
The 24 products in the
GU list can be divided into nine groups, only seven of these are
related to the 23 groups schedule listing the goods covered in the
official Khadi and Village Industries (KVIC) Act. Ceramic products,
room deodorants, penicillin based bulk drugs, and Ayurveda, Unani and
Siddha system medicament have sneaked into the GU list without a
listing in the KVIC act. On the other hand, there are 16 products
listed in the schedule to the KVIC Act which are not in the GU list of
the DGFT. Food products is a major omission.
The other notable point is that practically all the 24 products in the
GU list are eligible to DEPB, Drawback or DFIA incentives. The five
percent GU incentive will thus operate in addition to the normal export
incentive available. Penn G bulk drugs get 7% DEPB, Hand made paper
fetches 7%, Agarbatties get 8.8% drawback. Now they get another 5%
without value cap as GIL.
Our investigations shows that seven groups such as khadi which are in
both the GU list and KVIC schedule are in for a third gift. The KVIC
schedule goods get another five percent incentive from the KVIC upon
export. Three incentives, namely, 6% drawback, 5% VKGUY, and 5% KVIC
export apply on khadi garments.
The GU benefit is available only to the products of units who are
registered with Khadi and Village Industry Council (KVIC). The export
may be also sourced from the KVIC units by merchant exporter.
It is difficult to understand how bulk drugs based on penicillin can be
classified as village industry items. Possibly, the merchant exporter
will route the antibiotic from a KVIC unit which is otherwise
registered for one of the KVIC schedule items such as collection of
forest plants for medicinal purposes. The DGFT Public Notice does not
say that KVIC unit has to be registered for that specific product for
which the VKGUY incentive is claimed. Normally, KVIC will not register
a bulk antibiotic unit since antibiotics are not listed in its Act.
Mahatma Gandhi believed only in natural remedies and had no place for
artificial or power based products in his vision of gram swarajya.
The antibiotic model applies to high tech items like ceramic tableware
which involves large consumption of power and have no place in a rural
setting. Even Ayurvedic, Unani, Siddha, and Homeopathic medicines put
up for retail sale as listed under GU are rooted in an organized urban
environment and have no place in a rural setting.
Khadi exports will always be small since the production of the fabric
is limited on account of low output in the hand spinning of cotton
fibre process. As it is, 20 percent subsidy on retail sales of khadi is
eroding the health of the industry by subsidising the rich urban
consumer. Now the foreign consumer too will be subsidised by the three
incentives on the same export.
In our view, the GU portion of the VKGUY scheme is very complicated in
operation. Applications for the incentive will be subject to many
objections by the DGFT officers and customs inspectors who will be
chary of taking the risk of future inquiry committees on their
decisions. At the end of the day, the exporters as well as the
officials will rue the day on which the scheme were announced. The GU
scheme may well find its way to the trash can in the company of the
Target Plus and DFCE scheme very soon.
