Rationale for export sops

S. Murlidharan | Updated on April 05, 2011


BL04CONTAINER   -  The Hindu Business Line

Why are exports spared the tax-burden?

Manisha Pant, Nainital

Currently not all exports are tax-free. Exports from Special Economic Zones (SEZ) alone are income tax-free for 15 years, with full exemption in the first five and 50 per cent in the remaining ten years. Of course, all indirect taxes are either reimbursed on exports or waived.

The idea is to make Indian goods competitive in the fiercely competitive export markets. There are a few who question the basic premise that a country should pull out all stops to encourage exports. The Chinese experience shows that exporting through state subsidy which is what a devalued currency amounts to could be counterproductive in the sense that it could starve the domestic consumption. But Indian exports have not yet reached the critical mass.

We suffer from a perpetual current account deficit with oil imports eating into our forex reserves. Therefore we need to pamper exports if only to finance our unavoidable imports.

Bank consolidation

There are so many nationalised banks competing with each other. Wouldn't all of them be better off if they are fused into one entity?

Bhaskar Chatterjee, Kolkata

There is no reason why the same person – the government of India - should control so many banks whose products as well as pay structure are practically homogenous.

The government, it seems, failed to take follow-up measures after bank nationalisation - to merge the nationalised banks.

A bank fused together can take on competition from foreign banks both within the country and without.

There would be better utilisation of funds and beefing up of technology backbone of the banking sector so crucial these days given the fact that banking is now technology-driven. The inevitable loss of jobs of course is an issue that needs to be addressed.

Tax on sign-up bonus

My new employer has given me a substantial sign-up bonus. Is it taxable? Sushila Nayyar, New Delhi

Yes, it is taxable. After all, it springs from employment. At any rate, to dispel lingering doubts there is now a specific provision reaching out to such income for tax. Golden hello is taxable whereas golden handshake is spared from tax burden up o Rs 5 lakh in case of private sector employees.

China and dollar

Why is China clamouring for an alternative to US dollar?

Shubam Sehgal, New Delhi

China is truly on the horns of a dilemma. It has piled up upwards of $ 2.5 trillion, the highest forex reserves held by any country. Its fortunes are tied inextricably with the dollar.

All its wealth could diminish, should the dollar tank. It realises its folly of putting all eggs in one basket and in fact has been taking a lot of rearguard action by investing its export surplus in gold as well as in buying land in Brazil to cultivate sugarcane to produce ethanol to mix with petrol.

It enjoys a love-hate relationship with the US. It needs the US both for its exports and for parking its dollar reserves.

It would not like to do anything precipitous that could rock the dollar boat, but at the same time it wants an alternative regime in which the monopoly of the dollar as the world's reserve currency is broken. It is, however, not likely to happen in the near future.

Devaluation of currency

How does devaluation of currency help a country?

Shradha Rajvansh, Bhopal

A strong currency could be the pride of a nation but countries which swear by exports have a vested interest in keeping their currencies weak. The classic example is China which is steadfastly maintaining an artificially low value for its currency vis-à-vis the dollar — 6.83 yuan to a dollar whereas economists of various persuasions aver that it should not be more than 3. By keeping the currency undervalued, it encourages its exporters who get 6.83 yuan for every dollar of export from its central bank whereas had there been no undervaluation they would have got just 3. Indeed China has prospered on the back of exports which turn has flourished on the back of an undervalued domestic currency,

But the same strategy could hurt India because unlike China our imports are several times our exports and an undervalued currency would make imports costlier.

Opportunities in Japan

Are there opportunities for Indian construction workers in Japan?

Chenguttuvan, Salem

Yes, Japan, recently ravaged by a massive tsunami would need considerable rebuilding efforts, and Indian construction workers do have considerable scope to find employment there.

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Published on April 03, 2011

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