Government must set the ball rolling on modified incentives for exports

Amiti Sen New Delhi | Updated on January 16, 2018

With India’s exports showing signs of a rebound, exporters may see red if the govt fails to address their needs

Exporters have their expectations pinned on the Union Budget for more incentives to sustain the growth momentum, a way out of the working capital woes stemming from the new GST regime, and an improvement in infrastructure facilities.

The Finance Ministry, however, will need to weigh in a lot of factors such as maintaining fiscal prudence, confirming to multilateral obligations of curbing export subsidies and nudging State governments to participate in infrastructure development for exports, while coming up with a fresh package for exporters.

“Exports of leather-intensive items such as leather, foot wear, textiles, ready-made garments, carpets and sports goods are the need of the hour. The foreign exchange component of the raw material used in these products is minimum when compared to diamond, gold jewellery, electronic products or petroleum products where raw material imports comprise 80-90 per cent of the foreign exchange earnings,” said Anil Verma, President, Delhi Exporters Association.

Outbound shipments

India’s exports are showing signs of a rebound, with outbound shipments posting a growth of over 12 per cent in the first nine months of the fiscal, but exporters warn that without continued government support, they could slip back into losses.

While the Centre has already announced a higher incentive of 2 per cent (of export value) for most of the labour-intensive sectors under the Merchandise Export from India Scheme (MEIS) as part of the Foreign Trade Policy review in December, what remains to be seen is whether the Budget would extend the measure beyond June 30 2018 when the additional sops expire.

The bigger problem in extending the MEIS scheme is the fact that it is a direct export subsidy which India is no longer allowed to extend under the World Trade Organisation (WTO) rules. India’s per capita Gross National Income has exceeded $1,000 for three years in a row, and if the country does not do away with its export subsidies, other member countries of the WTO could retaliate.

“It is clear that schemes such as the MEIS cannot continue for much longer. The Centre has to soon come up with alternative incentive schemes for exporters that are not directly related to exports. These incentives could be in the form of technological upgradation and modernisation schemes, funds for research & development, or sops for capital goods. One has to see if the Budget takes a step in this direction,” a government official said.

Fiscal considerations would also determine whether the Finance Ministry would finally agree to do away with, or reduce the rate of Minimum Alternate Tax on Special Economic Zones, which the Commerce Ministry has been lobbying for the last few years.

Exporters are also looking forward to relief from paying GST on inputs used in the manufacture of export items. Export bodies such as the Federation of Indian Export Organisations (FIEO) have argued that the IGST paid on inputs are refunded after a long time, resulting in the blockage of working capital.

Therefore, the government should give an exemption from IGST on all instruments providing basic customs duty-free imports on inputs and capital goods.

The Finance Ministry is seriously considering the introduction of an e-wallet system for exporters from April 1, under which the government will credit a notional amount in an exporters’ e-wallet based on preceding year’s exports and an average GST rate.

It would be a running account from which money would be debited when the IGST gets paid and credited again when the proof of export is given.

“We are hoping that the new e-wallet system will be operational in April 2018 and the matter would be formalised in this year’s Budget,” the official said.

The Centre also hopes to convince more States to participate in the Trade Infrastructure for Export Scheme (TIES) announced last year to enhance export competitiveness by bridging gaps in export infrastructure, creating focused export infrastructure, first mile and last mile connectivity for export-oriented projects, and addressing quality and certification measures.

The Central government funding is in the form of grant-in-aid, normally no more than the equity being put in by the implementing agency, or 50 per cent of the total equity in the project.

So far, detailed project reports have been received from Karnataka, Tamil Nadu, Madhya Pradesh, Andhra Pradesh and Tripura.

Although exports in the ongoing fiscal might touch $300 billion as per industry estimates, the government is under pressure to boost performance further. Exports in 2016-17 were $276.54 billion compared to $314.14 billion in 2013-14.

Published on January 16, 2018

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