India is perceived to be a country of high trade transaction cost for various reasons. However, the government seems ready to fight this perception by bringing to life certain measures which could positively impact the cost of trade in goods.

In relation to export transactions, cost of trade is defined as the difference between the cost of selling the goods internationally and the cost of selling similar goods in the country minus the logistics costs incurred on moving the goods from the exporting country to the destination country. For import transactions, cost of trade is defined as the difference between the cost of procurement of goods outside India and the cost of sourcing the goods in India minus the international cost of logistics.

One of the key contributors to high transaction costs is the multi-agency regulatory requirements and the corresponding spade work of approvals and no-objection certificates to be obtained in the process of movement of goods.

Speeding process approvals

Now, however, the government seems committed to make a difference to bring efficiency in transaction by focusing on the following five initiatives — single window clearance, paperless customs, duty deferment at the time of import, direct port delivery and revival of the authorised economic operator (AEO) programme.

The nodal agency powering the move for efficiency and change is the Central Board of Excise and Customs. The ambitious ‘Indian Customs Single Window Clearance’ has already been implemented and the ‘integrated declaration’ to be filed at a single point of interface has been notified. The more number of government agencies participate in this initiative, the greater the degree of facilitation for international trade.

The paperless customs initiative would mean that all the supporting documents are scanned and uploaded for transmission to multiple agencies through the seamless message exchange platform. The IT hardware infrastructure required for scanning, uploading and storage of supporting documents is being sourced for bringing paperless customs project to life.

Trade facilitation measures

The Customs law has been amended to accommodate conditional deferral of duty at the point of import but the relevant rules and regulations are yet to be notified. Duty deferral programmes would improve the working capital requirement by releasing the cash locked in duty payment for a short period of time.

It is being said that all these initiatives would be conditionally available to the top 1,500 importers and exporters who have good track records. These businesses dealing in international trade together contribute to around 70 per cent of India’s international trade. The focus is also to make the AEO programme and the direct port delivery more inclusive and more effective.

All these measures can, together, be categorised as trade facilitation measures. They are meant to address the issue of high cost of trade transaction which has been drawing the attention of governments and multi-lateral trade organisations.

While globally it is estimated that trade facilitation measures could bring down the cost of trade transaction by 5-7 per cent, in the Indian context, it is difficult to quantify and estimate the impact of these measures on reduction in trade cost.

As per a back-of-the-envelope computation, based on a simplified cost model developed in this regard, it is estimated that these measures will contribute to an average reduction in trade transaction cost by $200 per twenty foot equivalent unit (TEU).

Considering that in the course of international trade around ten million TEUs are handled at major Indian ports, the cost efficiency on account of the above listed measures would mean saving of a billion dollar or more for the industry. Given shrinking global trade and the clouds of uncertainty affecting the global business, Indian industry would be all praise for the Central Board of Excise and Customs if the efficiency from such initiatives is made available in the current financial year.

The writer is Partner, BMR & Associates LLP

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