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Introduction
Export is a key area of our economy. It is an important means of earning foreign exchange and is thus vital for financing imports. Thus it is imperative for our economy to stimulate more exports which will encourage more cash flows within the country & subsequently be an important driving factor for growth of our nation.
A key indicator for overall growth of Indian economy is to maintain a proper balance between the value of imports & exports. But sentiment surrounding our current scenario of export performance has worsened dramatically. Among all the factors current account deficit is regarded as a prime factor which has severely impacted exports of our country. For improving the current account deficit, exporters in India should be offered more incentives in an effort to not only address the current account deficit issue but also bump up the sector that has witnessed a significant contraction in the previous fiscal year. At the same time one must be concerned with the fall of the rupee in international currency markets which has mainly attributed to fall in foreign inflows to our country. However though rupee has hit record lows which has adversely impacted the economic growth of all the sectors yet it is good news for the exporters & they should make full use of such opportunity.
Measures introduced by Government to boost exports & to minimize current account deficit.
Faced with declining exports, the government has announced a number of measures for pushing up the exports & trade deficit & to strengthen the rupee value in our country:
- One such initiative announced by Commerce and Industry Minister Anand Sharma as part of the annual supplement to the Foreign Trade Policy (FTP) to improve sluggish export performance in our country is extension of the popular zero duty EPCG scheme to all sectors beyond March 2013 and sops for Special Economic Zones(SEZs) to boost shipments for exports.
- To encourage more exports & to bring down current account deficit government decided to boost SEZ scheme, by easing land norm measures in SEZ Zone such as the minimum land area requirement for setting up such zones has been reduced to half and there would be no ceiling for IT and ITeS SEZs & allowing transfer of ownership and sale of SEZs units. Government hopes that by implementation of such measures will attract more investors towards SEZ scheme.
- Encouraging exports of imported products to Iran under rupee payment mechanism
Iran is known for export of crude oil but for its alleged nuclear activities, has been boycotted by United States and European Union & most companies in the West.
Fearing the boycott, foreign banks refused to handle payments to and from Iran & seeing such payment problems has prompted India to introduce rupee payment mechanism to continue trading with the country.
Under such mechanism India has been allowed to export imported products to Iran provided 15 per cent value addition takes place in the country. That means Exports of imported goods to Iran would be permitted against payment in Indian Rupees only, subject to at least 15 per cent value addition. This move will help in fuller utilization of the rupee payments accumulated in India’s UCO Bank maintained by Iran for oil purchased/imported from them by India to make payments to Indian exporters thereby avoiding payments in dollars and through foreign banks.
Indian exporters have welcomed the move but cautioned that there should be limits placed on the re-exports. - Exporters happy with the increase in duty drawback rates
The new all industry Duty Drawback Rates for 2013-14 has been rationalized for the year 2013-14, which have brought more items under the scheme facilitating tax refund to exporters to give a boost to overseas shipments.
Government has announced duty drawback for the garment cotton, man-made and silk for the year 2013-14. India’s garment exporters are facing tough times due to increased competition from Bangladesh and China in the US and European markets. As per exporters body Apparel Export Promotion Council (AEPC) hike in duty drawback rates would help boost the garment sector's exports & provide some relief to the exporters.
There has been increase in rates for some handicraft items, silk garments, fabrics and yarn, gold and silver jewellery, some of the handicrafts items and also milk products have been brought under drawback scheme as exports growth in dairy sector has been encouraging. With an aim to increase jewellery exports, the government increased the duty drawback rate on gold ornaments. The drawback rate has been increased at a time when large import of gold is impacting the country's current account deficit (CAD), which is presently at a high level. The government to discourage huge gold imports has raised import duty. The RBI has also put restrictions in respect of gold imports. Another advantage for increasing drawback rate to offset the increase in import duty of gold.
The duty drawback rates for wooden frames, tableware and kitchenware of wood, wood marquetry, art-ware of wood, paper machine products, embroidery of silk, hand-cut crystal glassware and imitation jewellery have been increased.
Under Indian Customs Act, various schemes like EOU, SEZ, Advance Authorisation, manufacture under bond etc., are available to obtain inputs without payment of customs duty/excise duty or obtain refund of duty paid on inputs. These schemes help in reducing the cost of imports thus further encouraging exports.
Reduction in Drawback Rates has been welcomed by exporters but concern has been expressed over the sharp decline in drawback rates for electronic sectors which has been requested to be reviewed. - Hi-tech products to get export incentives soon
India has the capability of producing & exporting hi-tech products of international quality, but so far has been lagging behind. Support from the Government will help exporters find markets for these products. For fulfilling this objective, hi-tech products from sectors such as engineering, electronics, chemical and pharmaceuticals will now be eligible for export incentives under the Focus Product Scheme. The objective of the FPS is to promote products that have high-export intensity and employment potential.
The detailed list of the selected products will be separately notified by Directorate General of Foreign Trade (DGFT) & entitled to duty credit scrips of prescribed percentage.
The decision to incentivize exports of high-tech products was announced by Commerce and Industry Minister Anand Sharma on April 18 in this year’s Foreign Trade Policy. - Interest shown by China of Indian exports to their country
During the visit of the Prime Minister of China, Li Keqiang in India this year, had indicated his interest that the Indian business community should have greater trade relations with his country. Mr. Keqiang said “TCS has supplied the necessary software on which many Chinese banks run today. This shows that Indian products have competitive edge in China.”
Due to the rupee depreciation & stagnant economy, exporters should seize this opportunity fully & government should provide necessary export incentives to increase more exports & improve relations with China. - Tax incentives for leather, precious and semi-precious stones sectors.
Finance Minister P Chidambaram today proposed tax incentives to increase shipments of sectors such as leather, precious and semi-precious stones. In order to boost de-oiled rice bran oil cake, the minister proposed to withdraw the export duty, which is mainly used for cattle feed. Vietnam is the major country where India exports de-oiled rice bran cake. Export duty on de-oiled rice bran oil cake had made our exports uncompetitive. - Interest subsidy
In a move to boost exports, the government has raised the rate of interest on subsidy scheme for exporters to 3% from the current 2% and widened the coverage of the scheme to cover more sectors.
Certain export related issues which are yet to be fully resolved by government to further improve the export performance of our country
- Cotton, cotton yarn, onion and iron ore exporters will not get export incentives anymore
Earlier Cotton, cotton yarn, onion and iron ore exporters were getting export incentives under the focus market scheme but now these exporters will be ineligible for duty credit scrip under the focus market scheme (FMS).
These products were on one hand availing of export incentives under the FMS while on the other hand there were curbs/restrictions on their shipments & exports which were not considered logical by the Government. This measure may have an adverse impact on the exports of such products. - Banks are not paying interest for the money parked in Exchanger Earner’s Foreign Currency (EEC) account
Though fall in rupee value against the US dollar has brought about a welcome momentum in the export sector which has resulted in greater cash inflow in the country. The influx of money has increased the demand from banks to pay interest on Exchanger Earner’s Foreign Currency (EEC) accountthat are held by exporters. Exporters are allowed to maintain an account in foreign currency with a bank in India, however exporters lamented that the banks were not paying interest for the money parked in the account. However the finance minister has said that he would certainly look into this demand. - Liquidity is a big issue for exports
Liquidity is a big issue for exports and pending claims of export incentives in form of refund of service tax, duty drawback, rebate claims and VAT are affecting exports. He also said that VAT claims in States like West Bengal, Punjab, Tamil Nadu and Maharashtra are very high. If the claims continue to rise like this “India may not be able to achieve the desired growth in exports due to the liquidity crunch faced by the exporters. SME exporters would be worst hurt due to this. small and medium enterprise (SME) exports. As we all know that the banks don’t look forward to give advances to SMEs & create unnecessary hassles, so the SMEs likely depend more on their export incentives offered to them. But delay in clearing all the claims they will be the worst hit on this. Thus making our exports more uncompetitive.
Conclusion
Export is a very important revenue generating sector for our economy & any sector which helps in the generation of significant amount of cashflow to increase the GDP of our country should be given special attention. Government though seeing the current scenario of our economy has introduced many tax incentives to pull up the export sector which has faced a heavy downfall in the recent past mainly due to rupee depreciation & current account deficit, yet keeping in mind that the advancement of our nation is based on having sufficient amount of revenue reserve, government should resolve the pending issues of export related matter for faster growth of our country.
Read more at: http://indiatoday.intoday.in/story/interest-subsidy-sops-announced-to-boost-indian-exports/1/266481.html
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