Wednesday, March 29, 2006

Exports, incentives and stories

In the 80s, Import- export firms were common place. They went under prefixes of suffixes like Impex, exim, exports, imports or imports-exports. They were also localese for "smuggling" or some form of duty evaded goods and the like. Stories like these where a set of diamond firms are under the scanner for misues of certain incentives are not unfamiliar. They would make you want to believe that exports in India, especially export incentives, leave a lot of scope for misuse.

Having been associated with a firm that used to export and having been in touch with many bankers in the export business, I can say that the truth is that there is a lot of misuse of these provisions. For instance, there is something by the name of packing credit wherein one can avail of cheap short term loans for raw materials procured for export and pay it when the customer pays for the finished product. Underinvoicing exports and overinvoicing imports are the most common. Money is fungible. Export laws, like other laws in India are drafted with immense spaces between the lines - meaning between those lines, subject to interpretation a lot can be done. The same is true in the import segment.

I am not saying that there are no legitimate businesses in this space, there are, but there are many who live on the thin line when it comes to export incentives.

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