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Why exporters need sops! |
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Export sops are either exporter’s legitimate claims or aimed to provide internationally competitive environment rather than offering subsidy contrary to public perception. The exporters never asked for subsidy to survive in the field of exports but, at the same time, they do not want to be saddled with the burden of domestic disabilities.
Exports are facing its biggest challenge since independence in wake of global slowdown. World trade, which grew by 6.5% in 2005, 8.5% in 2006 and 6% in 2007, decelerated to 2% in 2008, with a possible contraction by 9% in 2009. The forecast for 2010 is equally gloomy.
Some may argue that India is not a major player in global trade and therefore such slowdown should not impact exports. While partly agreeing to such contention, it should not be forgotten that lifestyle goods account for a sizeable share of India’s exports and when the job scenario is scary and businesses are closing down, demand for such goods will decline affecting overall exports. In those regions of the world where demand is unaffected, the huge stimulus provided by India’s competitors coupled with floor-level credit rates are out-pricing Indian products.
While government or exporters cannot generate demands overseas, both can initiate measures to increase competitiveness. Exporters are looking at every opportunity to cut cost and increase productivity. Machineries have been modernised and upgraded to reduce wastages. Technical manpower has been employed to constantly monitor production for possible savings. Industry is deploying IT at every stage of production to enhance productivity.
Forward contracts have been taken to cover currency risk and insurance cover is being bought to safeguard against non-payment by the buyer. However, this is an on-going process and cost cutting should be part of our strategy to increase competitiveness. Rupee depreciation, hitherto, provided much cushion but recent appreciation of the rupee by over 7% is neutralising the advantage on exchange front.
While global demand will pick up slowly, we will have to find ways to raise our competitiveness through fiscal and non-fiscal measures. Exporters do not require subsidies but the domestic disabilities cannot be carried overseas. Exporters require effective zero rating of taxes, internationally competitive interest rate and power at best benchmarked tariff rather than any direct fiscal support.
The foremost issue to be addressed by the government is the goods and service tax (GST). GST should provide full rebate of all indirect taxes, including those at state and local levels. At present, there is no scheme to rebate state and local taxes/levies which itself for few products works out to be 5-6% of the fob value in certain states.
Secondly, to neutralise fiscal stimulus packages of competitors, drawback and DEPB rates may be increased by 5%. Fringe Benefit Tax (FBT) discourages exporters from aggressively seeking new markets, therefore, government needs to exempt exporters from FBT. A major component of manufacturing costs in India is the cost of capital, which is 5-7% higher than elsewhere. Considering the high credit rate in India, exports credit should be given at 7% across the board without linking it with the PLR.
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