Red tape, a big drag on our exports

The World Bank’s ‘Doing Business’ rankings announced on October 27, 2016, placed India at a low 143 among 190 countries in the ‘Trading Across Border’ parameter that captures efficiency of export-import clearance process.

While the ranking is based on survey-based feedback of less than 50 persons, it still validates the view that doing export and import business in India is complex and time-consuming. Yet, ease of export/import remains critical to our economic growth.

At the macro level, exporting is a simple operation. It involves shifting a product from the seller’s place to the buyer’s place in another country and getting paid for it. At the operational level, it involves two parallel processes: completing the documentary requirements of various agencies and moving goods from factory to port. Despite reforms over the years, both processes are still complex.

Our business regulation/facilitation processes are short of global standards. According to the ‘Doing Business’ report, the average time taken in India for documentary compliance is 58 hours for exports and 65 hours for imports. The comparable figures for OECD countries are 3 hours and 4 hours. Border compliance is about meeting the requirements of customs, shipping companies, CFS and terminal operators at the port. Here, the figure are no better: the average time taken in India is 85 hours for exports and 307 hours for imports; for OECD countries they are 12 hours and 9 hours.

The delays make product delivery time uncertain, forcing a firm to maintain large inventory which requires additional unproductive investment. Firms dealing with lifestyle products with a short shelf life are worst-hit.

Three specific measures will help make export/import more efficient.

An exporter has to deal with central excise (for exemption from payment of duty), customs (for appraisal of documents and clearance of goods), DGFT (to receive export incentives), the shipping company (for shipment related formalities) and banks (to open letter of credit and receive foreign exchange realisation), to name a few. While all agencies have improved their systems, the interface is a problem.

Documentary compliance time can be reduced by setting up a platform that processes all the requirements online. Let’s call this platform the National Trade Network (NTN). NTN should serve as the central technology platform that will power the operation, administration and oversight of the entire process. NTN should be led by a person with a technology background and expertise in delivering complex projects. All government and other agencies will have to operate through NTN and introduce a single common document containing information required by all.

NTN will allow the firm to file all information/documents digitally at one place. The in-built system intelligence will route the required information to the appropriate agencies. A service agreement with these agencies will bind them to respond to these requests within 2-5 hours, and users will receive permissions online within this time.

Centralised submission, assessment and processing will minimise the need for posting of large numbers of officers at the local customs house, central excise or DGFT offices. Today, over 80 per cent of officers doing trade-related jobs are posted in the local offices. These officers process applications or carry out assessment of cases relating to a designated office. Shortage of staff impacts the output at many places. With NTN, while officers may continue to be located in different locations physically, they will be available to assess files submitted anywhere in the country.

Trade Single Window or NTN-type concepts have been discussed in government for 15 years.Most government agencies have developed online systems that interact with one another through web services. However, none of these are truly single window as they do not take care of end-to-end processes and are legacy systems. NTN will not require physically shifting all work to one agency, and all agencies based on the existing expertise will continue doing their work. Only, they will have to do it through the NTN. Paperless processing will make export/import documentation online and automatic with minimum human intervention and will reduce costs for both exporters and the Government.

In most countries where NTN-type projects have been implemented, the highest political executive of the country supervised the project to ensure the full cooperation of participating departments.

For exports, most customs formalities can be completed at the designated factory or the inland container depot (ICD). Factory stuffing of containers, which has reduced customs processing time at ports, should be made compulsory for all shipments. Using the electronic seal and electronic cargo tracking system (ECTS) will enable real time tracking and electronic monitoring of seal status. Once the officer puts the electronic seal on a container, it should not be checked again along the way or at the port. When goods arrive at a port, customs officers already have the required information through NTN and the Let Export Order (LEO) can be generated online. This action will bring down customs processing time to near zero level. The success of the operation may be measured in terms of reduction in number of customs staff deployed at the port.

For imports, since customs duty is charged on most goods, these are released only after the importer pays the duty. Since the process mostly starts after a ship lands, it takes time and delays the release of goods. This time can be cut by either collecting duty in advance of arrival of goods or collecting after the release of goods from the port. Advance payment will require advance electronic filing of a document called Import General Manifest (IGM) by the shipping company. This contains details of goods that allows customs to calculate duty; the firm can pay this duty ahead of arrival of a ship. Deferred payment of duty can be allowed to the top 2,000 traders who account for over 80 per cent of India’s international trade.

Trader interface with shipping companies, port operators and CFS needs urgent attention. Making this efficient will reduce time and costs substantially. Currently, most imported goods are shifted from the port to a container freight station (CFS) which is an enclosed area near the port, to await clearance from customs, shipping companies, port operators and so on. Exporters complain that many shipping companies load new charges and delay the release of cargo till these are paid. They also force firms to use a particular CFS. Foreign shipping companies are not covered under any Indian regulation. A regulation nudging shipping companies to notify all charges at the port of loading will ensure transparency.

These changes do not require large investments but they will enhance competitiveness of Indian export operations, spur a large number of new entrepreneurs into exports and significantly improve India’s performance in exports.

The writer is with the Indian Trade Service. The views are personal