FIEO organised Online Interaction on “Exports scenerio (including Budget changes)-Challenges and the Way Forward”
No country has ever achieved a GDP growth of 8% or more on sustained basis without double digit growth in exports. All those years in which India exhibited 8% plus GDP growth were the year when exports also clocked 15% or more. Therefore, vibrant exports are extremely important for us as we move towards a US$ 5 trillion economy with exports contributing to US$ 1 trillion.
While demand side should be taken care by the exporters, Government plays an important role in imparting competitiveness to exports particularly addressing the supply side issues. Covid-19 has accentuated the supply side challenges with abnormal hike in freight rate, containers unavailability and frequent shutouts by the shipping companies. Government did encourage the shipping companies to bring empty containers and provided free movement of such containers from gateway port to ICDs/CFSs, the problem still continues. As global economy moves towards normalcy, we expect the situation to ease out. However, as a medium-term strategy, we should start manufacturing containers so as to manage the short supply particularly the mismatch between imports and exports as we move towards our goal of self-sufficiency.
Global trade has recovered remarkably well. The decline in Q3 and Q4 compressed to 4.5% and 3% respectively as against a whopping downfall of 19.5% in Q2 of 2020. The overall contraction in global trade is expected between 7- 8% which is much better than the best forecast given by WTO at minus 13% for 2020.
Uncertainty over MEIS and SEIS affecting liquidity and further exports
The biggest challenge in the international trade is the uncertainty. Unfortunately, the element of uncertainty has been added with delayed announcements of the schemes, rates and even backlog in rightful claims of the exporters.
A large number of exporters both of goods & services are still awaiting for their claims for 2019-20 and 2020-21 (upto Dec,2020) both in respect of Merchandise Exports India Scheme (MEIS) and Services Exports India Scheme (SEIS). Their liquidity has entirely dried up. Many of them in micro & small sector are not in a position to take new orders due to rising uncertainty and lack of liquidity at their disposal. Exporters are required to pay advance taxes on such receivables and thus they have been put under severe financial strains. These kinds of blockage will have its impact on exports particularly in respect of MSME units and if the benefits are not released quickly, a fairly large number of exporters will have no other option but to close their businesses. We urge the Government to allow filing of the claim for MEIS and SEIS instantly so that exporters may file and get their dues quickly.
Unavailability of RoDTEP rate and limited budget
The RoDTEP Scheme was announced w.e.f 1st January, 2021 yet no rates have been announced. How exporters can finalise their contracts in absence of the RoDTEP rates? This has become more acute for sectors having razor thin margins where such benefits are important component of the profitability. If the rates are not notified quickly, many of the exporters would not be able to enter into new contracts and the same will get reflected in future exports of the country. The Government should notify the RoDTEP rates for all the products for which the Committee has already submitted the rates. The Committee may be asked to fix further rates so that rates for all products are notified by 28th February, 2021.
The RoDTEP is a duty refund scheme which provides refund of all taxes and duties hitherto not refunded through any other mechanism. If it is a refund scheme, the refund should not be limited to the budget constraints. We request the Government to provide whatever budget is needed to enable the export sector to get the rightful claim based on the parameters of rates fixation. We have to bear in mind that India hardly has many options to support exports after losing special and differential treatment. RoDTEP being a WTO compatible measure should provide rightful competitiveness to exports not marred by the budget constraints.
Union Budget & Exports
While the Union Budget is extremely positive and growth oriented for economy, certain provisions brought through the Finance Bill have serious bearing on exports.
Section(ja) of Section 113 of the Customs Act:
Confiscation of goods under wrongful claim of refund/remission is particularly harsh as confiscation of goods will not only hurt the exporters but will also affect the country’s exports as well as its image. Moreover, the word “wrongful claim” is subject to various interpretations and will put exporters at the mercy of field formations even if the remission rates are wrongly calculated or dispute about classification of the product under a particular rate arises. The remission rates may be 2% of the product value and for such a small benefit, the entire goods should not be confiscated. We request the Government to kindly look into the newly created Sub-Section(ja) of Section 113 of the Customs Act.
Withdrawal of IGST payment option for Exports
The Finance Bill has amended the Section 16 of the IGST Act withdrawing the facility of exports on payment of IGST as originally envisaged in the Act. Hitherto (till the changes are notified in the Act) exporters have the option to exports either under bond/LUT or on payment of IGST. Most of the exporters were availing the IGST payment facility as the mechanism of refund was entirely seamless without any transaction cost.
The IGST refund is without any application (shipping bill itself is treated as application), it can be claimed for each shipment and 100% reimbursement is available in one go. The entire process is dealt by the Customs smoothly.
On the contrary, the ITC refund is beset with procedural challenges including filing of application, uploading of documents, deficiency letter, issuance of ARN, payment after considerable delay by 90%, balance 10% after the Audit with much delay. This involves huge transaction time translated into transaction cost.
If the IGST system was functioning seamlessly and was preferred option for the exporters, there was not need to dispense with such option. Challenges, if any, faced by the tax authorities should be discussed so that those categories of cases can be discussed to find an amicable solution rather than dropping an excellent facility extended to the exporters while entering the GST regime.
Introduction of E-Wallet to address liquidity
We also request the Government to immediately introduce the e- Wallet scheme which was recommended by the GST Council in October, 2017 and was supposed to be introduced w.e.f. 1st April,2018 and then deferred to October, 2018. However, the Scheme has not seen the light of the day despite recommended by the GST Council more than 3 years back. The e-Wallet scheme will provide the liquidity to the exporters and their money will not be blocked in payment of the taxes while procuring inputs for exports.
Scheme to support R&D for Exporters
India’s R&D spending is one of the lowest amongst its competitors. We spent 0.6-0.7% of the GDP on R&D while our competitors like South Korea spends 4.1%, Japan 3.38%, China 2.19%. Moreover, Government is the driving force of R&D in India unlike other countries where R&D is driven by the private sector. R&D is crucial for sustained growth in exports. We request the Government to bring a duty-free scheme for import of R&D equipment and consumables by regular exporters with minimum export turnover to encourage them to invest more in R&D.
Indian exports not subsidized
Very often media talks about huge incentives to exporters. First of all, the total support given to Indian exports is even not 1% of India’s exports. The support to the export sector in 2021-22 is as follows:-
Interest Equalization Scheme : Rs.1900 Cr
Market Access Initiative (MAI) : Rs.200 Cr
Transport Marketing Scheme (TMA) : Rs.150 Cr
Trade Infrastructure for Export Scheme (TIES) : Rs.75 Cr
RoDTEP : Rs13000 Cr
Out of the above support, RoDTEP is a duty neutralization scheme and thus may not be considered as a support to export sector. Excluding RoDTEP, the entire support to export sector is only a negligible fraction of India’s exports.
New US President and implications for India:
Mr Joe Biden has assumed the charge of US presidentship on 2oth January, 2021. He is expected to bring stability and predictability to global trade and economy which itself will push global economy and global trade growth. He does not believe that the trade is zero sum game and thus would not be unduly concerned with the trade deficit with India which US is having for over 20 years and which is now declining on year-on-year basis particularly as India is importing oil and gas from US besides aircraft and defence equipment.
He may also bring back GSP to the negotiating table as GSP is a non –reciprocal gesture but Mr Trump brought element of reciprocity into it and insisted for relaxation in price control on medical devises and access to its dairy products.
Relaxation in H1B Visa is likely to benefit India’s IT and ITES exports and other services particularly under Mode 4.
Multilateral institution like WTO will get more support and it will benefit India as we don’t have many effective FTAs.
Trans Pacific Partnership, a brain child of former President Barrack Obama, a democrat and mentor of Mr Biden, may be revived and US may ask India to join as it excludes China.
The biggest beneficiary of the change is likely to be Iran. This will not only help India to start its oil imports from Iran but will help our exports as presently we are only exporting food, pharma and medical equipment to Iran, on humanitarian grounds, under Rupee Trade Mechanism but money in the account is fast depleting. A restoration of trade ties with Iran can easily add about US$ 3 Bn of exports from India raising it to over US$ 5 Bn.