Exporters not enthused by Budget plans

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G. Srinivasan

New Delhi, March 1

THE export segment is by and large a beneficiary of the Union Budget 2005-06 as its broad thrust is on the manufacturing sector and employment.

Also, the attempt by the Finance Minister to reduce the peak rate for non-agricultural products from 20 to 15 per cent and duty rates on capital goods and raw materials and correct any inverted duty structures would benefit exporters. But exporters feel otherwise.

In his Budget speech, the Finance Minister, Mr P. Chidambaram, said the Government would build on the growing external strengths of the economy and it has delivered on the promise to accelerate foreign trade.

He said that as the Government has fixed an ambitious target of $150 billion for exports by the year 2008-09 to double India's share in world exports to 1.5 per cent, "We intend to further liberalise trade policy and extend full support to the efforts of our exporters."

The announcement of benefits on infrastructure through special purpose vehicle (SPV) for large infrastructure projects requiring foreign exchange reserves to finance necessary imports, particularly in specified sectors such as roads, ports, airports and tourism would go a long way in overcoming the infrastructure-related hurdles to exports.

Similarly, the stress laid on diversification of agriculture towards fruits, vegetables, floriculture, dairy, poultry and fisheries and the special benefits conferred on the textiles industry would help boost exports of agriculture and allied products, marine products as also textiles and clothing in the post-quota regime.

However, the exporters felt that issues such as taxing the benefits of the Duty Entitlement Passbook Scheme (DEPB) retrospectively, relatively high cost of export finance, changes introduced in the duty drawback rates and continued high transaction cost due to rickety infrastructure, procedural complexity and heavy documentations at Customs have not been effectively addressed in the Budget.

They hope that these would be the priority area for action in the forthcoming modification to the new Foreign Trade Policy to be announced on March 31, they said.

Hundred per cent export-oriented units and those in special economic zones said that the Budget did not address their long-standing demand for abolition of sunset clause under Section 10 B of the Income-Tax Act scheduled from April 1, 2009, besides exemption from Central sales tax and service tax.

The cess imposed on high-speed diesel (HSD), which is an essential input for manufacturing, is also opposed by the exporters, as it would jack up their cost of production.

Mr L.B. Singhal, Director-Genral, Export Promotion Council for EOUs and SEZ units, told Business Line here that the Finance Bill, 2005, refers to carrying out an amendment in Section 10A of the I-T Act to introduce a cap on new investment and any fresh investment after March 31, 2009, in the SEZs would not be entitled for income-tax exemption.

He said in the existing scheme or in the proposed provisions in the draft SEZ Bill there is no cap for availing oneself of income-tax exemption on the setting up of units in the SEZs and the proposed amendment in the Finance Bill 2005 would discourage investment into SEZs.

As per the Government's avowed policy the new multi-product SEZs are allowed only in 1,000 hectare or above. These would be large-sized SEZs with long gestation period.

Hence, in the new big size multi-product SEZs the likelihood of new investment after 2009 is very promising but the proposed amendment would be a dampener, he cautioned.

(This article was published in the Business Line print edition dated March 2, 2005)
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