IT Taskforce
Basic Background  Report
8th August 1998


Several issues like purchase of companies abroad, purchasing plants in auctions abroad, exports through subcontract manufacture and DEPB issues, are important for Hardware export. A list of new policies required in respect of these is given below:

1. The official Excise Rule book does not insist upon a Bank certificate of exports to be attached with the application for refund. The Government has adequate safeguards, through the Banking system, to ensure that foreign exchange is received against all exports. However excise authorities are often insisting upon a copy of the Bank certificate of exports as a proof that foreign exchange has been received. This causes further delay in the refund process since the application can not be lodged for quite some time after the actual exports since it takes time to receive payment form the foreign buyer.

Necessary amendments may be made so that the Excise Authorities at the field level do not insist upon Bank certificate of exports or FIRC.

Current mandatory time limit for 3 months during which the Excise Authorities under Section 11 BB must process and pay the refunds should be reduced to one month.

2. A blanket approval for overseas investment for acquisition of IT Hardware companies across the board for IT Hardware exporters with previous three years comulative actual export realisation in excess of US $ 25 million to be given upto 50% or US $ 25 million, whichever is lower, out of the cumulative actual export earning of the previous three years. This is subject to submission of a certificate of IT hardware industry by appropriate authorities.

For FERA approvals beyond this limit, RBI would set up a mechanism for expeditious processing of applications from this sector.

The same provision can be utilised for buying plant and machinery in auctions abroad, except that RBI will make available the required Foreign Exchange in advance with the provisio that the unutilised FE shall be surrendered within 15 days of the completion of the auction.

3. For overseas ventures, a dispensation shall be given for allowing the capitalisation of both goods and services; RBI shall accordingly notify this in consultation with Commerce Ministry.

4. An allowable limit of 70% of the contract amount for expenditure abroad for IT Hardware exports shall be alloed. As this by itself does not provide flexibility for utilisation for the prupose of general corporate objectives or for businesss growth purposes, RBI shall permit IT hardware exporters to freely spend upto 5% of the export proceeds abroad(out of the total 70%) for miscellaneous/sundry purposes to give full flexibility. Also, a new list of allowable expenses under the 70% limit would be worked out.

5. Under the existing provisions, if the EOU/EPZ unit has to return the rejected material/capital goods purchased from DTA under CT 3 Form then they are required to pay the Central Excise Duty which is unnecessary burden on the EOU/EPZ unit. It is suggested that necessary notification may be issued to permit EOU/EPZ Units to return the rejected material/capital goods purchased from DTA under CT 3 Form without payment of Central Excise Duty. The same provision shall equally apply to the S-BIT units/zones.

6. In terms of 9.17 of Exim Policy(1997-2002) the request for sub contracting of goods in DTA is being considered by the Custom authorities on the basis of factors like fixation of input and output norms and furnishing of undertaking by the concerned units.

Customs authorities are inisting on the production of Bank Guarantee. As the para 9.17 of the EXIM Policy does not speak of Bank Guarantee, a clarification may be issued.

7. To encourage and create infrastructure for subcontracting,

• create clusters for electronic hardware manufcturing/sub-contracting similar to those in other Asian regions.

• Both Government and industry should take initiative to attract subcontracting business from international OEMs and make India a major destination for subcontracting. For this activity to start, existing domestic computer/IT demand may not be a critical influencing factor. There is already some contracting activity going on with quite a few success stories of companies with large export earnings. Growth of the units taking up contracting activities as above shall be promoted through Brand Equity funds and other measures and incentives.

Large scale value addition activity starts with industry moving up the value-added chain and much better balance in foreign exchange flows can be achieved.

8. Foreign direct investment guidelines do not permit the flow of capital other than foreign equity to meet its total financial requirements. Similarly, Indian companies are not allowed to raise funds form abroad at international terms and conditions to meet the total financial need of the industry. Therefore, FIIs keep their own priorities and finance limits depending upon ther MOF guidelines. IT hardware sector should be treated as priority sector by GIIs.

9. (a) As a speical case, for exports to Russia and other CIS countries, electronics goods, the following relaxations may be allowed under the EXIM Policy.

(i) Export of goods against non-convertible currency should be counted towards discharge of export obligations under various schemes of the EXIM Policy.

(ii) Export against non-convertible currency should be allowed under various schemes without any restriction.

(b) Credit rate under DEPB scheme should be allowed on exports against non-convertible currencies. The credit rate in this shall be equivalent to the 70% of the applicable rate for export against convertible currency.

(c) Exporters are permitted to utilize DEPB credit in lieu of payment of basic customs duty and CVD. However, for some odd reason the EXIM policy does not permit claiming of credit of CVD (Para 7.41) in case the DEPB is utilised for payment of CVD. In other words, it is currently mandatory for importers to pay CVD in cash if they want to claim Modvat. It is suggested

that Modvat credit and indeed Modvat refund should be permitted regardless of whether CVD at the time of import has been paid by Cheque/cash or by debit in DEPB.