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Exporters bullish on new measures, industry watchers strike cautionary note

Experts feel that the exporters' entire focus should not be reliant on government measures alone.

, ET Online|
Last Updated: Sep 16, 2019, 09.49 PM IST
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A fully automated electronic refund route for Input Tax Credits (ITC) in GST was a long-standing need of the sector.
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Taking note of a 9% dip in India’s overall exports in the first five months of this fiscal, the government on September 14, announced a slew of export centric measures in its bid to boost a slowing economy.

In addition to wide ranging steps taken to give a fillip to the country's exports, the government announced the replacement of existing Merchandise Exports from India Scheme (MEIS) with an altogether new scheme -- Remission of Duties or Taxes on Export Product (RoDTEP). Finance Minister Nirmala Sitharaman, while announcing this, said that the new scheme will comprehensively address the issues faced by the exporting fraternity - both in the short and long term.

India's exports in August have dropped by 6.05% to $26.13 billion in comparison to the August 2018 mark as per the official data released by the Commerce Ministry. In such a scenario, to what extent did the sector warm up to the government’s mega announcements and believe that these sufficiently address the existing set of woes?

While the industry, at large, seems to hold the notion that new measures will give the much needed thrust to exports, there are some, who, citing historical policy lags (e.g: country’s still evolving tryst with GST), remain sceptical and prefer to rather wait and watch to see the declarations' actual implementation on the ground.

‘Much needed booster’
Terming the government's steps as positive, Federation of Indian Export Organisations (FIEO) President, Sharad Kumar Saraf said, "The new scheme looks attractive as it will neutralise all duties and levies suffered by the export products. Fully electronic refund module for quick refund of ITC by September 2019 will help exporting community in speedy refund of their GST and will help in getting long pending refund of ITC.

Saraf stated that the host of measures taken to improve credit outflows from banks and transmission of interest rate cuts will go a long way in improving the cost and availability of credit. "Expanding the scope of Export Credit Insurance Scheme (ESIC) by ECGC will enable a reduction in the overall cost of export credit including interest rates especially for MSMEs. The scheme will offer much needed support to export to countries with little or more risks," he said.

He also lauded the step of leveraging technology to minimise turnaround time at ports and airports via the digitisation of export clearances.

Echoing similar views, Rajiv Chawla, Chairman, IamSMEofIndia, says that the measures announced will ultimately help the exporting community. He, however, adds that the only thing which should now be given increased focus should be the GST refunds as many exporters still feel its related bottlenecks.

Arun Singh, Chief Economist at Dun and Bradstreet opines that at a time when trade wars and protectionism are impacting trade flows and business optimism across the world, the government’s stimulus package for the exporters was much needed. “Import restrictive measures imposed by the G-20 members from mid-May 2018 to mid-May 2019 had impacted trade of US$ 817 bn,” he says, adding that the government’s measures covering taxation, finance, facilitation, FTAs, engineering and handicrafts are promising and aims to address the issues from both a short term and long-term perspective.

Awaiting finer details
Harpreet Singh, Partner, KPMG India, strikes a cautionary note saying that the kind of levies and duties covered, how RoDTEP would be computed, mechanism and timeline for granting the remission etc. are some of the key questions which will need to be answered for better understanding of the new scheme and its relative benefits.

On a promising note, Singh while flagging existing bottlenecks related to GST, further adds, “In challenging times, each and every penny matters. Therefore, if fully automated refund module can deliver GST refunds to exporters in a timely manner, this should go a long way in improving their working capital thereby providing much-needed impetus to exports.”

A WTO compliant move
Ever since India been challenged at the WTO by the US over its popular MEIS scheme, New Delhi has been said to be contemplating phasing out its subsidy schemes, including the MEIS. The launch of RoDTEP scheme is seen as an attempt to address such a concern.

Historically, MEIS incentives have provided (a sort of) cushion to a large base of fund-starved Indian exporting fraternity. These, by way of offering duty credit to address infrastructure issue, have assisted country’s exporters to compete effectively with the likes of Bangladesh, Indonesia and Vietnam -- countries that compete against Indian manufacturers across many global marketplaces.

The World Trade Organisation (WTO) makes it amply clear that a country can't offer export subsidies if it's per capita Gross National Income (GNI) stays above $1,000 for three years in a row. Worth noting is the fact that in 2017, the WTO declared that India’s GNI had crossed $1,000 in 2014, 2015 and 2016.

“The direct incentives under MEIS were challengeable by WTO. The RoDTEP scheme is WTO compatible. Exporters will feel much safer now. For instance, 5% was the MEIS rate on exports for footwear and leather products. Now, under the new scheme, a 6.5% rate is expected to come by. If we end up getting that benefit, it will imply actual reversal of indirect duties and taxes for our sector. In a sense, the government is withdrawing incentives and giving us back the taxes - direct or indirect, State or Central,” says Puran Dawar of Council for Leather Exports (CLE).

Hailing the positives
The government, as part of its measures, also announced that a fully automated electronic refund route for input tax credits (ITC) will now be executed in GST which is expected to monitor and speed up ITC refunds. Further, Sitharaman said that the Export Credit Guarantee Corporation (ECGC) will expand the scope of Export Credit Insurance Scheme (ECIS). This step has been lauded greatly by the industry leaders who have been pitching for such a move for quite some time now.

“The fully automated electronic refund route for Input Tax Credits (ITC) in GST was a long-standing need which would ease the working capital constraints of traders. Measures like an overhaul of tax refund schemes for exporters, provision of higher insurance cover, revising priority sector lending norms are expected to ease the funding constraints of the exporters” says Singh of Dun & Bradstreet.

The industry further agrees that the government’s strong focus to leverage technology to reduce ‘Time to Export’ through digitization of all export clearances at port, airport, customs, etc. and elimination of offline/manual services is greatly applauded.

Experts, however, feel that the entire focus should not be reliant on government measures alone. Dawar of CLE adds that the onus now lies with exporters to take this forward. “They have to change their mindset. They need to look at topline i.e. high turnover and less margins and not just their bottomline. This will lead to creating more jobs and the economy can then get the impetus it needs for growth,” asserts Dawar.
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