India’s exporters benefit scheme suffers from low outlay, might run into implementation gaps–THE ECONOMIC TIMES

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SynopsisWith interest rates at historical lows this is the right time to give a liquidity boost to Indian exporters.

While the Union Budget has been cheered by most Indian businesses, one community left ruing are the exporters. The primary reason for is the allocation of just Rs 13,000 crore towards the Remission of Duties & Taxes on Exported Products (RoDTEP) scheme. To put this number in perspective, RoDTEP is supposed to be the one-shot replacement of several input tax neutralization/export incentive schemes, just one of which – Merchandise Exports from India Scheme (MEIS) – had an outlay of over Rs 38,000 crore in FY 2019-20.

There are several ways to look at the fund allocated towards RoDTEP. The most important being the fact that the government finally acknowledged that MEIS and Service Exports from India Scheme (SEIS) were a form of export subsidy schemes that were not looked upon kindly by the World Trade Organisation (WTO) and the US, our largest trade partner. The MEIS and the SEIS that were introduced in the Foreign Trade Policy (FTP) of 2015-20 were similar to previous schemes like Focus Market Scheme (FMS), Focus Product Scheme (FPS), Vishesh Krishi Gramin Udyog Yojana (VKGUY), etc clubbed together with some minor tinkering.

Hence, the withdrawal of MEIS and SEIS and a budgetary allocation for the RoDTEP indicate that the FTP for the next five years will have policies that are in line with WTO norms and give Indian exporters some much-needed policy certainty.

Being Atmanirbhar
The budget fine print reveals that the RoDTEP might run into implementation gaps if it isn’t thought through beforehand. A scheme which was introduced at the beginning of the current calendar year to compensate exporters for the taxes and duties they have paid to the Central, state or even local governments during the manufacturing of an exported good, will neither provide cash compensation nor convertible scrips. The compensation provided under RoDTEP will be providing credit to an exporter’s ledger account in Customs EDI and can be used to offset any customs duty that the exporter has to pay while importing in the future.

In addition, the scheme doesn’t compensate an MSME exporter, who has paid excise duties but exports something that has zero imported components and/or raw materials. This might put several exporters at a massive disadvantage vis-à-vis a competitor that uses a lot of imported raw materials in its goods.

Similarly, while the rates under RoDTEP have yet not been notified and probably will be done at the time of the unveiling of the FTP, an allocation of just Rs 13,000 crore indicates that they would be nowhere close to those under MEIS or SEIS. Just how small this number is when compared with the outlay under MEIS in FY2019-20 as mentioned above, can be gauged from the following: The total customs duty foregone due to the several Free Trade Agreements (FTAs), Preferential Trade Agreements (PTAs), etc., that India has spent over five times of it at Rs 67,559 crore in the same year.

The RoDTEP scheme may not be disputed at the WTO, but it shouldn’t be a victim of fiscal constraints as the scheme pays back an exporter taxes and levies he has already paid to import raw material to manufacture an exported good.

RoDTEP apart, what one needs to watch out for in the upcoming FTP is what the government does with the Duty Drawback (DBK) scheme. Essentially similar to RoDTEP, DBK attempts to remit back taxes and duties paid on input components of export products. The Standard Input Output Norms (SION) which is used to arrive at DBK rates, however, needs revisiting. These do not include several components used in the manufacturing of some major export items, and the quantities prescribed are often lower than what is used. The caps put on the DBK rates, particularly for some high-value export items, should be upwardly revised.

These expectations might just turn out to be wishful thinking as at just Rs 377 crore, the budgetary allocation towards DBK for FY 2021-22 is at a multi-year low.
Correct timing
Hence, with the FTP just a few weeks away and government ready for a major overhaul of the policies governing the country’s trade, policymaking should focus on two aspects:

  • How to channel the massive savings the government is making by getting rid of export subsidies in a WTO compliant way towards export promotion.
  • Figuring out a way to revive the often-neglected area of Export Credit. With interest rates at historical lows, if there was ever a time to give a liquidity boost to Indian exporters, it is now, given the fact that total outstanding export credit in the Indian banking system is on a secular decline.

The writer is CEO of Drip Capital)

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