Trade and service sector leaders meet FM, urge tax cuts, export support

New Delhi: Trade and service sector representatives met finance minister Nirmala Sitharaman on Thursday for pre-budget consultations, seeking tax cuts for MSMEs, incentives for smaller companies to reduce their carbon footprint and energy costs, increased financial support for exporters, and the continuation of the Interest Equalisation Scheme (IES) to maintain export competitiveness.

The discussions, held ahead of the Union budget to be presented on 1 February 2025, come at a crucial time for India’s economy, which is grappling with slowing growth and geopolitical challenges to its trading aspirations.

The meeting, attended by senior finance ministry officials and a host of eminent trade and service sector representatives, centered on pressing issues such as fostering growth, enhancing global competitiveness, and addressing the industry's critical challenges.

Exporters also made a compelling case for a series of strategic measures aimed at boosting India’s exports, particularly in the wake of trade tensions between the US and China.

Read more: India’s budget needs to address three medium-to-long term priorities

The Federation of Indian Export Organisations (FIEO) urged the government to capitalize on growing tariffs on Chinese goods, positioning India to fill gaps in sectors like electronics, automotive parts, and apparel while proposing a ₹250 crore annual marketing fund for exports to the US. It called for extending the Interest Equalisation Scheme (IES) to help MSMEs with high credit costs, the apex trade organisation said in a statement, adding that it also requested the finance minister to increase R&D support, development of a domestic shipping line, and relief from GST liabilities for small discrepancies.

"FIEO also reiterated its long-standing demand for India to develop its own shipping line to reduce dependency on foreign carriers. This would help secure more stable freight costs and reduce the exposure of exporters to supply chain disruptions," it added.

Another prominent suggestion was to introduce a 25% income tax slab for MSME manufacturing units that are partnerships, LLPs, or sole proprietorships with the condition that the 10% saved in taxes must be reinvested in the business.

"This will give MSMEs an extra cushion of 10% for expansion/working capital improvement and improve their liquidity. This will also generate employment due to the expansion undertaken by MSME units," said Engineering Exports Promotion Council (EEPC) India in a statement.

"Increased funding under the Market Access Initiative (MAI) scheme has also been proposed to facilitate trade promotional activities. Enhancing the total MAI fund allocation to ₹1,200 crore would support MSMEs in participating in international trade events and connecting with their global counterparts," it added.

"Allocating specific funds for capacity-building programmes targeting prospective exporters in interior districts and rural areas would enable them to enter international markets," said EEPC India chairman Pankaj Chadha, who attended the pre-budget consultation.

"The introduction of a safeguard duty on certain steel imports may increase the landed cost of steel, leading to higher domestic prices. For MSMEs, steel constitutes 60% of their production costs, making them vulnerable to global competition and potential job losses," Chadha added.

Support for MSME growth

EEPC India also recommended increasing the cap under the Interest Equalization Scheme (IES) to ₹10 crore to provide more substantial financial support to MSME exporters, aligning with the previous limits and the growing needs of the exporting community.

Meanwhile, the Gems and Jewellery Export Promotion Council (GJEPC) requested the finance minister's support for co-funding global diamond promotion campaigns, the inclusion of jewellery parks in the harmonized infrastructure list, and an Infrastructure Support Fund to develop a Gem Bourse in Jaipur. 

"Advancing a platinum jewellery ecosystem and expanding IJEX trading centres will further strengthen India’s global leadership while creating substantial employment opportunities," said Vipul Shah, Chairman, GJEPC after the pre-budget consultation.

The consultation with trade and service sector representatives featured Vipul Shah, chairman of GJEPC, Rajesh Nambiar, president of Nasscom, Dileep Baid, chairman of Export Promotion Council for Handicrafts, Sandeep Narula, Electronics and Computer Software Export Promotion Council, Abhay Sinha, director general of Services Export Promotion Council, Sumnesh Agarwal, Sports Goods Export Promotion Council, Pankaj Chadha, EEPC India, N.K. Goyal of TEMA, Ashwini Kumar of FIEO, Virat Bhatia of Mobile and Electronics Devices Export Promotion Council, and Srikanth Badiga, chairman of Export Promotion Council for EOUs & SEZs.

Read more: Time is running out to revive India’s manufacturing sector

The consultations come as India grapples with a slowing economy and slowing export growth amid geo-political uncertainties.

Real GDP growth slipped to 5.4% in the September quarter, the lowest in nearly two years, dragged down by a slowdown in manufacturing, urban consumption, and weak corporate earnings. For the first half of the fiscal year, GDP growth stood at 6%, requiring an ambitious 8.3% growth in the second half to meet the Reserve Bank of India’s (RBI) projection of 7.2% for the full year.

Meanwhile, India’s merchandise exports dropped 4.83% in November to $32.11 billion, the lowest in 25 months, while the import bill surged 27% to a record $70 billion, surpassing October’s previous high of $66.34 billion by a significant margin.