Vanishing Incentives Rob Exports of Sheen & Shine.“ There are one thousand ways to make one thousand dollars, but engaging in exports is the easiest way.”
If an entity has a web presence, it has global marketing and order-taking platform.It’s easier today than ever before for a company to sell goods and services across the globe. Small size companies are exporting more than ever before. More than 200,000 small and medium sized Indian companies exported to at least one international market in FY ended 2020, before COVID-19 spread its blockade tentacles around the world.
Notwithstanding Corona, the global trade is to grow in future. The World Trade Agreements on trade facilitation are enhancing the global GDP in leaps and bounds.WTO members are improving custom procedures and cutting regulatory tape, speeding flow of goods and services across borders at reduced costs. Some countries have introduced “Single Window” system to handle international trade efficiently with least hassles to traders. Along with moderating duties on imported goods to make goods cheaper for consumers, efforts are on to generate additional business opportunities by strengthening intellectual property rights, simplifying regulations, opening up service sector and treating foreign companies as domestic companies giving them rights to list in local stock exchanges. One in ten manufacturing jobs in India, depends on exports.
Further Trade finance and global banking have evolved to the point where buying and selling things internationally is routine, safe and efficient with multiple financing channels.Reliable payment mechanism through Letters of Credit, SBLCs and and credit cards have enriched the system with confidence. eCommerce platforms have further removed the fears of exporters where advance payments can be received before actual exports. According to World Bank report, Global Economic Prospects, trade in goods and services is likely to grow 300% by 2030.
Enthused by such a scenario many Indian companies have shut their domestic sale windows to focus on high value high margin exports. But competition has overtaken their prerogative of pricing and margins have thinned down to abysmally low levels. Further the escalation in most of fuel has impacted developing economies adversely resulting in high transportation costs for exports. Because of stringent quality needs, most of Indian exporters spend their margins on value enhancement of products and are dependent on the incentives given by the Central Government to breakeven on international trade transactions.
For the FY ended 31.03.2021, India exported goods and services worth $493.19 billion and imported worth $506 billion. For the first four months of current year India has exported $ 205 billion and imported $215 billion. Indian exports 7500 commodities to 190 countries and imports 6000 commodities from 140 countries. Exporters of goods and services used to avail benefits under the Merchandise Export from India Scheme (MEIS), and the Services Export from India Scheme (SEIS). MEIS ended last year under WTO strictures resulting in discontinuance of export incentives.
After a long agonising wait, the government has come out with a solution on pending dues of exporters under the two incentive schemes, MEIS and SEIS, by the first week of September to partly clear the arrears for MEIS (two years), and SEIS (one year). It was announced that pending payments would be staggered, in a way that exporters can encash it early.It was announced that henceforth, the Remission of Duties and Taxes on Exported Products (RoDTEP) is going to be a flagship scheme for India for promoting exports.The existing MEIS scheme was covering 7,900 products, but the RoDTEP shall cover 8,555 lines plus three chapters under the RoSCTL of textiles.
The government on Tuesday notified tax refund rates under the Remission of Duties and Taxes on Exported Products (RoDTEP) scheme that will cover as many as 75% of tariff lines.The rates will be in the range of 0.3-4.3% of the freight-on-board value of the exported products. Both schemes are not comparable because MEIS was an incentive programme and RoDTEP scheme is to reimburse various embedded levies paid on inputs used in exported products to encourage exports.
RoDTEP will effectively reduce the benefits for most exporters, as they gear up to take advantage of a resurgence in global trade in the aftermath of the pandemic. However, while the programme will cover 8,555 products, over a thousand more than the Merchandise Exports from India Scheme, that it has replaced, the allocation for it is less than a half of what was the government’s annual outgo under the MEIS. The steel, pharma and chemicals sectors have been kept out of the RoDTEP ambit, given that exports from these sectors are faring relatively well. This has upset exporters of these products. Similarly, engineering goods firms, accounting for about a fourth of merchandise exports, have complained that taxes embedded in primary input steel are not factored in the RoDTEP rates.Under the MEIS, the government used to offer eligible companies scrips in the range of 2-5% of the freight-on-board value of their exports, higher than the RoDTEP refund rates.
The Govt allocated Rs19,400 cr for tax refund schemes Rebate of State and Central Taxes & Levies for garments, and RoDTEP scheme, to cover obligations from January 2021 to March 2022. In FY22 alone, funds around Rs.17,000 cr would be required, higher than total budget outlay of Rs 13,000 crore.Importantly, much to the dismay of exporters, the scheme won’t be an open-ended one.The remissions for each year will have to be managed within the approved budgetary outlay.The inadequate remission will compound a Covid induced liquidity crunch and erode the competitiveness in global market when demand from key economies is reviving.
The notification has robbed the sheen and shine of exports. The entrepreneurs shall divert to fast emerging domestic markets for margins putting pressure on Current Account balances.India’s foreign exchange reserves of $ 610 billion will decline due to this step.
“ Between two stools, exporters will have to sit on the ground”
Hargovind Sachdev
About the author
He has specialisation in Credit, Foreign Exchange,Vigilance, Monitoring & appraisal of Corporate Loans, MSME Credit,Gold Loans, Agricultural Loans & NRI Business Management in assets & liabilities. As a Forensic Auditor, he has conducted various Transaction Audits allotted by Banks.
He was felicitated by the Central Vigilance Commissioner , Sh. C.V Chowdhry for winning first prize for best article on Preventive Vigilance in 2015. He is also an accomplished Public Speaker having conducted multiple Motivational Seminars for institutions like ONGC, National Housing Bank & Bank of Baroda. He is an Independent Director & consultant to various big entities in corporate sector at present.
