Home / Budget 2019 / News /  What the Union budget can do to re-energize India’s stagnant exports

NEW DELHI : When finance minister Nirmala Sitharaman presented her first budget on 5 July last year, one crucial word was missing from her 20,189-word speech: Exports. This led to talk of a probable turf war between the finance ministry and the commerce ministry.

That was expected to change when Sitharaman announced a new scheme called Remission of Duties or Taxes On Export Product (RoDTEP) in September. The scheme, compliant with World Trade Organization (WTO) rules, was supposed to replace Merchandise Exports from India Scheme (MEIS) which the US had challenged in the WTO. However, exporters are receiving neither MEIS nor RoDTEP benefits for the last five months, at a time exports are contracting month after month beginning August.

“It’s a tough time for exporters, particularly for the small ones who have faced a liquidity crunch. Trade and industry is not aware what transpired between the two agencies. I expect the notifications to come this week. Hopefully, now the things are likely to settle down and the pending dues need to be released as early as possible," Ajay Sahai, director general and chief executive officer of Federation of Indian Exports Organisation said.

On paper, the MEIS is valid till 31 March except for apparel and made-ups sectors which has got its own interim scheme without incentives. RoDTEP has not been rolled out so far as the cabinet has not approved it even after five months of its announcement.

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Graphic: Paras Jain/Mint
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Graphic: Paras Jain/Mint

$300 billion conundrum

Once growing at over 20%, powering India’s robust economic growth, India’s exports have been stuck at around $300 billion for the last one decade, driven by loss of export competitiveness and volatility in global markets. Indian industry has often played safe, content with the domestic demand and unwilling to upgrade technology or standards to match global levels. In labour-intensive sectors like textiles where India had an edge due to cheap labour, Bangladesh has outsmarted India, thanks to the sticky labour laws of the latter.

Steve Felder, managing director, Maersk, South Asia, said faster adoption of technology to digitize trade operations will need enough budget allocations in order to increase productivity and lower the cost of logistics by reducing or eliminating costs added by middlemen. “There is a need to further sharpen our focus on infrastructure that would pertain to port infrastructure, hinterland connectivity, warehousing to be really competitive as well as policies and regulations that would help boost infrastructure development in these areas," he added.

Pushkar Mukewar, co-founder and co-CEO, Drip Capital said with the new Foreign Trade Policy (FTP) around the corner, expectations are that the budget will allocate appropriate funds and resources for its implementation and pave a way for boosting exports from the country. “We expect certain policy interventions to energize the export sector, overcome anticipated flat growth, ease liquidity problems, and resolve persistent problems faced by small and medium-sized enterprises (SMEs) in the sector," he added.

Do No Harm

Faced with the falling fortunes of Indian exporters and rising imports, especially from its northern neighbour China, India has increasingly turned to import substitution by curbing what it calls non-essential imports.

The commerce ministry now wishes to expand its scope further. It has asked the finance ministry to impose a border adjustment tax in the budget on certain imported goods to make up for non-refundable internal taxes like electricity duty, duties on fuel, clean energy cess, etc for exporters.

It has also proposed to put curbs on 200 non-essential items such as toys, furniture, plastic products and sports items. Trade minister Piyush Goyal has even threatened to restrict imports of around 3,000 uncategorized “others" items worth $140 billion in India’s import basket.

A commerce ministry official on condition of anonymity said the move is foolish. “It’s not like we don’t know what we import through the ‘others’ category. Suppose, five varieties of biscuits have been identified. When a new variety of biscuit is imported, then it is put in ‘others’ category. We know it is a biscuit, we only don’t know the variety," he explained.

Biswajit Dhar, professor of economics at the Jawaharlal Nehru University, said these are extremely wrong signals that India is sending to the international community. “What the US president Donald Trump is doing, whether one likes it or not, he is giving justifications. Here you are putting a tax without even consultations. And these measures will do nothing to promote exports nor will they help the Indian economy," he added

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