Millennium Post

Exports: The engine of growth

Initiating policy changes to enhance exports can help offset the slump in domestic manufacturing

Exports: The engine of growth

The timing is right. We have proved our quality, we have proved our commitment. The world is looking at us. Slump/slowdown in Domestic manufacturing could be/should be offset by kick-starting and fast-tracking of exports. Readymade infrastructure lying idle could be and should be ideally and immediately utilised for Export Manufacturing. Right dose at the right time is required and time is ripe. Instead of ideas and ideating, implementation is important. The intention should result in implementation. Desire should convert into delivery. Let us all get together and get going. The industry needs to fasten its belts and look inwards for cutting cost wherever possible and the government needs to join hands to supplement, complement and implement some of the immediate measures which would go a long way in achieving the achievable.

Engineering exports: An engine of export growth

Engineering exports constitute about 26 per cent of India's total exports and have the potential to garner a bigger market share. It is a highly labour-intensive sector and provides sizeable employment.

However, in the last one year, the price of steel which is the basic raw material for engineering exports has increased by almost 20 per cent. This has made engineering exports uncompetitive and unsustainable.

Steel mills export steel at much lower prices compared to their domestic prices which are offered to buyers here. Engineering exporters buy steel domestically from these mills at these high prices. It is suggested that engineering exporters be provided steel at competitive/export prices that are offered to international buyers by steel mills. Only announcing for MSME will not serve the purpose since we need large capacity and capability for Exports and Cost and Logistic disadvantage is faced by all irrespective of the size (large/medium/small).

Cost of Credit and Availability of Credit

Interest rates of major competing countries are either nil or negligible whereas Indian exporters have to pay 6-7 per cent minimum interest. Vide Circular number RBI/2018-19/81,DBR.Dir.BC.No. 09/04.02.001/2018-19, the government has given interest equalisation scheme from 3-5 per cent. However, this is only applicable for Micro, Small and Medium Enterprises. The above should be applicable to all exporters so that they can compete in the international market. Similarly, a smooth flow of funds must be ensured.

Competitiveness of Indian exporters

Opening of trade windows due to trade tensions between the US and China provides an opportunity for Indian exporters to enhance/get a foothold in the US market. Chinese exporters are offering their goods at more than 10 per cent discount, with the Chinese regularly devaluating their currency Yuan. They are able to match their original prices nullifying the impact of duty imposition. We don't know what kind of subsidies/support – visible/not-so-visible do they get from their government.

Hence, our government should support exporters for offsetting the cost disadvantage and non-abetment of taxes and duties by enhancing MEIS and Duty Drawback rates at the earliest till another refund scheme is introduced. Still, there are many taxes, duties and levies which are not yet refunded through GST mechanism, such as Electricity Duty, Taxes and Duties on Petroleum Products; though we are sure it will be taken care of in the upcoming announcements.

Refund of Certification Charges

For US Markets, taking UL (Underwriters Laboratories) Certification is a pre-condition for exporting electrical products. UL marking is mandatory for all electrical products to be sold to the US. The charges for UL listing are prohibitory but have to be paid by exporters. It is high time the government should encourage and energise the existing exporters who can expand and capture a bigger ready market share in the US from their existing customers provided we are competitive and cost-effective. Hence, certification charges paid to Underwriters Laboratory (UL), etc., should be reimbursed by the Ministry of Commerce under Market Access Initiative (MAI) or any other scheme.

Role of Embassies/High Commissions

Embassies and High Commissions are our ears and eyes. They should be proactively engaged in gathering and sharing market intelligence in terms of new opportunities and also how and what the other governments are offering to their exporters. Role of Ambassadors should be equally that of Economic Ambassadors, which will enhance and enlarge our efforts to increase India's market share in the global trade.

Need for a Shipping Regulator

Exporters are facing severe hardship due to continuous rise in shipping freight to US, Canada and even to European markets by the shipping lines. These increases have been brought about by imposing several surcharges like peak season surcharge and general rate increase which varies according to different shipping lines and container sizes. Apart from these, the shipping lines have also imposed several small surcharges and incidental charges such as the issuance of Bill of Lading (BL), Amendment to BL and various other smaller charges, which are adding up to a sizeable amount.

In absence of any National Shipping Line, our exporters are at the mercy of these foreign shipping lines. As in the case of COSCO, the Chinese National carrier, it is suggested that we should invest in Shipping Corporation of India so that determine or set the freight rates rather than foreign shipping liners. Also, a National Shipping Regulatory Body should be formed in the lines of IRDA and TRAI to determine freight rates.

Special Economic Zones

SEZs were created with the main objective of generating additional economic activity, promotion of exports and the creation of employment opportunities.

Close to Rs 4.75 lakh crores have been invested in SEZ. Yearly exports from SEZ are close to Rs 6 lakh crores and around 20 lakh people are employed in SEZs. SEZs have a huge potential for increasing exports and need stable policy. There are serious issues which are driving entire investment made in SEZs go waste if no remedial measures are taken.

Due to mid-term policy changes, many units in SEZ are finding it difficult to do business and carry on operations. Lot of infrastructure developments and investments initially planned for SEZs have either been abandoned or in a state of suspension.

The government should use these existing ready infrastructures for increasing the value of exports. The following remedial measures in way of policy change will go a long way in contributing to this objective.

The SEZ Act of 2005 provided for Income Tax exemption for 15 years for units located in SEZ. MAT has unexpectedly been imposed on units in SEZ. The 10 year period (2006-16) for Income Tax exemptions has also ended and units established in 2006-07 are paying full Income Tax which has made them unviable due to added financial burden and they will lose the stimulus of investing and enhancing exports. It is hence suggested that a one-time 100 per cent Income Tax payment exemption for a period of 10 years be provided and MAT be withdrawn at the earliest for all units operating in SEZs to mitigate the financial burden and give impetus to exporters to make further investments to expand or strengthen their existing operations.

It is suggested that Duty Drawback eligible on exports from DTA to SEZ should be credited to exporter's bank account similarly as exports through ICES (Indian Customs EDI System), without the need to submit physical documents which will drastically reduce time, money and energy expended by both the exporters and authorities.

(The author is Chairman – CII National Committee on EXIM & MD, Patton group. The views expressed are strictly personal)

Sanjay Budhia

Sanjay Budhia

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