Indian exports, particularly from the month of August, have been increasing with the first nine months of 2017-18 clocking around 12% growth. With exports of about $224 billion during the same period India is on course to achieve $300 billion of exports. However, the numbers hide the fact that exports in the country are passing through tough times, mostly because of the domestic factors.
“The major problem which is faced by the sector is on the GST front because even if you talk about a very efficient refund system, the refund entails a time lag because you will be importing or procuring the product, producing a product and exporting it, and the refund will float to you. And since the cost of credit is pretty high in India, that is blunting the competitive edge of Indian export depending on sector to sector and the production cycle. But, on a rough estimate we feel that in most of the cases the competitive edge is blunted by 1-1.5% and since in global business profit comes from volume, even this little margin is making a huge difference which is affecting Indian exports,” Ajay Sahai, DG and CEO, Federation of Indian Exports Organisation (FIEO) says.
What can also be worrying is that because of the perceived benefits of GST, there are talks of doing away with export promotion schemes.
“In fact, I would like the Finance Minister to provide continued exemption on any inputs required for exports because in many countries where GST or VAT system is in place, including EU, Singapore, Thailand, South Africa or Australia, they have carved out a separate exemption for exports. Because they know even an efficient system will entail some delay in refunds. Secondly, for Micro and small sector, I would like him to come back with a comprehensive drawback scheme which not only refunds the basic custom duty, but which also refunds the input tax credit for the small exporter. Let him forego GST claim and he gets all the benefits at the time of export itself. So I would like him to announce a comprehensive drawback scheme which takes care of most of the problems of micro and small units,” says Sahai.
For Rajiv Chawla, the President of Faridabad Small Industries Association, most of the procedural difficulties can be taken care of by the Ministry of Commerce in a routine manner. “From this Budget, I have different expectations. I am looking for direct financial incentives and would request our Finance Minister to look at providing direct tax benefits to exporters in the MSME sector at least. For example, approved startups have such exemption, so why can export oriented MSMEs be provided something similar,” says Chawla.
Chawla adds that the government should look at reintroduction or perhaps an enhancement of schemes for capital subsidy where MSME sector can invest in better technology, better machinery, and more productivity.
The Government last week notified the All Industry Rates (AIRs) of Duty Drawback effective from October, 2017. “As a step towards more efficient Input Tax Neutralization on the exports, after considering various representations from the trade and industry, the Government of India has enhanced the All Industry Rates of duty drawback for 102 tariff items. The Export Items mainly include Marine and Seafood Products, Automobile Tyres and Bicycle Tyres/Tubes, Leather and Articles of Leather, Yarn and Fabric of Wool, Glass Handicrafts and Bicycles, etc,” said a government statement.
The thorn for most SMEs have been refunds under the GST and exporters have long complained that capital is being locked up for months, rendering most businesses uncompetitive and in certain cases putting the very survival of the business at risk.
According to Priyajit Ghosh, Partner, KPMG India, the upfront exemption for a reasonable period of time, maybe about two years should be provided. “Because we will get to know the real impact of GST only two to three years of time from now, this makes sense. Second is that e-wallet kind of a scheme where anyone gets upfront credit which you can use for the payment or duty. These are going to be useful. The credit refund provision is already there in the law and we have to wait and see if they implement it or not,” says Ghosh.
However, according to MS Mani, Partner, Deloitte India, there has to be a lot of simplification done for exporters and simplification would include the compliance, the processes that are embedded to get an incentive script or do anything else.
“There has to be focus on a lot of export simplification so that exporters are able to concentrate on their core competence. And their core competence is able to get an order from a buyer abroad, execute that order and deliver on time. That is their core competence. So all the other hassles that exporters face relating to tax, scripts and compliance should be taken away and that should be minimised to the extent possible,” says Mani.
Mani adds that if it is possible to do that through an exemption, that would be good, but if not possible, then other processes to do with refund should be made very simple. “In fact, in the GST law, it was proposed that within seven days of the refund application being submitted, 90% of the account would automatically get credited, which means in my mind that the intention is already there. It is only now that the implementation has to be much better,” says Mani.