Finance Minister Releases Report of Task Force on Transaction Cost in Exports

The Report of Task Force on Transaction Cost in Exports was released here today by the Finance Minister, Shri Pranab Mukherjee in the presence of Shri Anand Sharma, Minister of Commerce and Industry and Shri Jyotiraditya M Scindia, Minister of State for commerce and Industry. The Task Force chaired by Shri Scindia was constituted in October 2009 to identify and suggest ways to achieve significant improvement in the functioning of export processes and reduce time and money spent in export transactions, with a view to enhance the competitiveness of Indian exports. The function was attended by Shri Rahul Khullar, Commerce Secretary; Dr. Anup K Pujari, Director General of Foreign Trade (DGFT); and representatives from the trade and apex champers.

While releasing the Report, the Finance Minister said that reducing transaction cost and time in foreign trade requires support of all concerned Ministries / Departments as the value chain of the foreign trade transaction cuts across various inter-connected processes. He also informed that many discussions were held with various stakeholders and finalized the report suggesting measures to reducing transaction costs and time impacting the country’s foreign trade.

Speaking on the occasion, Shri Sharma said that the average cost to an exporter on account of transaction costs has been monetized at a level of US$ 945 per container as compared to US$ 460 in China, US$ 450 in Malaysia and US$ 625 in Vietnam. He further added the key benefits of these measures will especially accrue to the small and medium enterprises, who lack resources and infrastructure to deal with various aspects of regulatory framework. “In a way, the benefit of reduction of transaction cost will primarily benefit the small entrepreneurs. Clearly, there is much that can be done to strengthen the institutional framework which deals with the entire spectrum of transaction cost. Information technology has a crucial role to play in enhancing trade efficiencies and in this context, the electronic data interchange is an important initiative for reducing transaction cost. The e-Trade Project under the Department of Commerce was conceived with an objective of ensuring electronic delivery of services to provide 24 hour access to users and to simplify procedures, making them transparent.”

While delivering his address, Shri Scindia said that based on the interactions with stakeholders, the Task Force identified 44 issues and taken up with the relevant Ministries and after consultations with them, it was agreed to implement 32 of these issues. “Of these, 21 issues have been implemented and another 2 are likely to be implemented in a couple of months. The remaining issues are under the process of examination and consultations for implementation. It is expected that implementation of 23 issues is likely to mitigate the transaction cost by approximately Rs.2100 crore. Permanent reduction of transaction cost through these initiatives will have a long term positive impact on the competitiveness of India’s exports.”

The Task Force took into consideration various parameters that lead to the overall transaction cost for every export consignment. On the basis of secondary data analysis and expert opinion, various indicators viz., manpower cost, cost of money locked as a result of bank guarantees / drawback amount and other direct costs were factored into arrive at indicative monetization of transaction cost of relevant issues. The Task Force also undertook field visits as well as global bench marketing visit to understand the best practices.

Transaction cost reduction in exports to boost competitiveness and ease burdens on small and medium exporters. Reduction of transaction costs in exports through administrative and ICT reforms aims to enhance export competitiveness and particularly benefit small and medium enterprises. A Task Force identified 44 issues across the export value chain, prioritized 32 for implementation, and implemented 21 measures; it monetized cost components such as manpower, capital tied in guarantees/drawbacks, and direct administrative costs using data, expert input and benchmarking. Key recommendations include institutional strengthening, procedural simplification and deployment of electronic data interchange and e-Trade services to improve transparency, accessibility and to achieve long-term efficiency gains contingent on inter-ministerial implementation and monitoring.