SME Times News Bureau | 20 Feb, 2012
For encouraging special economic zone (SEZ) units to procure from domestic suppliers and ensure that they are able to maintain export competitiveness, industry body ASSOCHAM Sunday called for duty drawback facility to be extended for supplies even if the payment is made in Indian rupees.

Exporters are currently entitled for duty drawback benefit only if exports are made in freely convertible currency. However, reimbursement of duties is available in case of supply to SEZ developer or co-developer even if the payment is realised in rupees.

Some manufacturers in SEZs prefer to source some of their inputs from the domestic tariff area (DTA) when suppliers are competitive and can adhere to stringent global standards, instead of duty free imports that they are permitted, said The Associated Chambers of Commerce and Industry of India (ASSOCHAM).

When inputs are sourced domestically, they are not affected by movements in foreign currency. The realisations become volatile if sales are denominated in foreign currency due to fluctuating exchange rates.

“Inputs sourced domestically should be encouraged by the government since the country saves foreign exchange involved in import of goods which the SEZ would have resorted to in the absence of appropriate domestic supplies,” said secretary general D.S. Rawat in communication to the finance ministry.

Despite these obvious benefits, supplies made by DTA units to SEZ units against rupee payments are not eligible for drawback benefits.

There are 124 SEZs in India and most of them are concentrated in Andhra Pradesh, Tamil Nadu, Karnataka, Kerala, Maharashtra and Gujarat.

Exports out of SEZs in 2010-11 moved up over 43 per cent over previous year to Rs 3.16 lakh crore. Nearly 6.77 lakh workers are directly employed in these zones that have attracted investments worth Rs 2.03 lakh crore. The government allows 100 per cent foreign direct investment through automatic route.