New Delhi: Finance minister Pranab Mukherjee unveiled a raft of measures in the Budget on Monday to shield exporters from the global economic downturn and to spur growth in overseas shipments that have contracted for eight consecutive months.
The Budget extended a tax holiday by one more year for export-oriented units, software technology parks and electronic hardware technology park units. It also extended an interest-rate subsidy scheme for seven labour-intensive export sectors.
The government has been offering a 2% interest subsidy on pre-shipment credit to the seven sectors such as textiles, including handlooms, handicrafts, carpets, leather, gems and jewellery and marine products, to reduce the cost of credit and help exporters stay competitive.
An insurance plan provided by the Export Credit and Guarantee Corporation (ECGC) that covers exporters for up to 95% of payment defaults will also be in effect for one more year until 31 March 2010.
Mukherjee also exempted exporters from paying a service tax on the use of goods transport and commission agents. For use of other services, exporters will be allowed to continue claiming a refund after paying the service tax.
India’s exports in May fell by 29.2% on an annual basis to $11 billion (Rs53,020 crore), the eighth month in a row that they had contracted, as overseas demand slumped in the face of a recession in the US, Europe and Japan.
The India team of the United Nations Conference on Trade and Development (Unctad) said in a recent report that India lost 1.16 million jobs in 2008-09 and may lose 1.3 million jobs in 2009-10 in the export sector. It forecast a growth in exports only in sectors such as plantation, agriculture, engineering and electronics.
“Our exporters, by virtue of their close links to the external sector, have borne the brunt of the global economic crisis. It is, therefore, appropriate that we continue to provide all possible assistance to our exporters to help them overcome the short-term disadvantages,” Mukherjee said in his Budget speech.
The allocation for the Market Development Assistance Scheme that provides support to exporters in developing new markets was more than doubled from Rs50 crore to Rs124 crore in 2009-10.
The export lobby group, the Federation of Indian Export Organizations (Fieo), welcomed the measures taken by the government, while maintaining that the steps didn’t go far enough.
“We were anticipating a quantum jump in the marketing support in view of dire necessity for diversifying the (export) market base,” said A. Sakthivel, Fieo president.
Other broader measures like the abolition of the fringe benefit tax would provide relief to exporters, said Ajay Sahai, director general, Fieo.
The Budget also brought cheer to the developers of special economic zones (SEZ) who have been demanding that the government correct an anomaly in calculating the “exempted profit” of a developer on which he need not pay tax. The tax has hitherto been calculated taking into account the revenue of the assessee who may have operations outside the duty-free area. The government has now clarified that the exempted profit will now be calculated based on the revenue of only the SEZ unit.
“This was a major issue. I am happy that the anomaly has been removed,” said L. B. Singhal, director general of the Export Promotion Council for Export-oriented Units and SEZs.
Fieo also was thankful for other small handouts, including the move to allow the duty-free import of trimmings and embellishments for readymade garments, leather and textiles. “The introduction of the optional route in respect of excise duty on cotton yarn will eliminate the difficulties faced by the exporters and enable them to get the cash rebate of such accumulated duties,” said Sakthivel