New Delhi: India’s exporters are a worried lot.
Four months after India’s biggest tax overhaul, traders are still waiting for Rs500 billion ($7.7 billion) they say the government owes them in refunds, leaving them short of operating capital as overseas sales suffer.
“It’s an alarming situation," said A. Sakthivel, regional chairman of the Federation of Indian Exporters Organisation in southern India. “Our working capital is stuck, we’re losing revenues and now we’re having to let workers go." More than 10,000 workers have lost their jobs in the Tirupur export hub that employs half a million in the state of Tamil Nadu, according to Sakthivel.
India’s exports dipped for the first time in 15 months this October, falling 1.1% to $23.1 billion, even as the government tinkered with ways to simplify the hurriedly implemented nationwide goods and services tax (GST). While last month’s trade deficit widened the most in three years to $14 billion, exports are expected to fall further in November if prices of crude oil, India’s biggest import, continue to climb, traders say.
The decline in exports combined with the slowing of India’s $2.3 trillion economy contrasts with the accelerating global economy. With elections due in key states over the next few months, including Prime Minister Narendra Modi’s home state of Gujarat—India’s second-most industrialized state with annual exports worth $60 billion—his government faces the twin challenges of restoring business and saving informal sector jobs.
Nitin D. Wakankar, a spokesman in the commerce ministry, didn’t respond to calls seeking comment.
Small, unorganized businesses—especially in traditionally dominant textiles and jewellery sectors—have witnessed the worst supply chain disruptions since July, exporters say. Two-thirds of India’s exports basket comprises traditional product groups, including gems and jewellery, pharmaceuticals, textiles, engineering goods, food and fuel. In spite of extended deadlines for tax filing and large-scale reviews that eased rates for merchant exporters, the flow of cash refunds remains slow, according to traders.
Although exports are likely to stabilize after the GST-driven distortions subside, the traditional product mix will hinder the country’s ability to participate in the ongoing trade upturn, according to Radhika Rao, Singapore-based economist at DBS Bank.
“Idiosyncratic drags from GST-related uncertainty and the effect of duty drawback" have added to trade headwinds, Rao wrote in a report on 22 November.
The government’s efforts to address exporters’ concerns will begin to show results shortly, according to Ajay Sahai, director general of the Federation of Indian Export Organisations. But in the meantime, many of the smaller exporters had to stop accepting fresh orders for lack of funds after paying taxes, he said.
The liquidity crunch has worsened with banks unwilling to lend exporters for GST payouts while they wait for refunds. Having to borrow more was further hurting profitability, said Ganesh Kumar Gupta, Mumbai-based chairman of Akaash Textiles Pvt. Ltd and Vijay Silk House Group.
“GST will help the whole nation but the system is just not working," Gupta said. “We’d rather the government kept exporters out of the GST completely." Bloomberg