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Hitting above the Target
While new export targets may be attainable, much remains to be done to unshackle the Indian export sector |
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Ramu S Deora Past President, FIEO |
The Commerce Ministry has set an ambitious export target of $160 billion for the current fiscal. With the new measures announced under the Annual Supplement to Foreign Trade Policy recently, I am sure the country would surpass the set target and raise its share in the world trade to over one percent.
Special emphasis on agriculture and small scale sector would provide a long-term momentum to export from these areas and at the same time create additional employment for our rural population. As per government statistics, 93 per cent of exporters from the country have annual export turnover of less than Rs.10 crore and only seven percent of them are large houses. By giving a special thrust to increase exports from SSI sector, the government has acknowledged the importance of small exporters. The Supplement pledges interest on delayed payments of various tax refunds to the exporters and this will help them, especially the smaller ones, to maintain their working capital requirements.
During my last meeting with the Commerce Ministry, I had made some specific suggestions to provide additional momentum to the already surging export sector. I am happy that many of my suggestions find due recognition in the Annual Supplement. The service tax, for example, will now be reimbursed against the export of merchandise goods. It will now also be exempted on the commission paid to service providers abroad. Scrapping Appendix 26 for the renewal of export house certification will reduce the unnecessary paperwork and is expected to bring down the transaction cost for the exporters.
I had also suggested that the country should dispense with the new nomenclature for status houses based on ratings like one-star or two-star and should restore the old nomenclature of export house, trading house or star trading house. I am happy that the Supplement seeks to restore the old nomenclature which are more value-loaded and image enhancing like Japanese concepts.
The government has decided to dispense with the verification of advance authorization and Export Promotion Capital Goods (EPCG) licenses at par with the Duty Entitlement Pass Book (DEPB) which will reduce the hassles of exporters. But I strongly feel that the DGFT should have also dispensed with the Redemption of Advance License/Authorisation. When direct online data is available, what is the need for additional paperwork?
The duty exemption on import of capital goods equivalent to 10 percent of the FOB vale of agricultural exports by a status holder will boost agricultural exports from the country and thereby generate additional employment in rural areas. The trade was, however, expecting zero duty on EPCG scheme across the board.
The Supplement seeks to incorporate the definition of manufacturing in the Income Tax Act which has brought some relief for export oriented units. The EOUs had long been claiming that in the absence of a clear definition of manufacturing, they were often denied the income tax benefits under section 10 B as the tax officials had the tendency to declare an activity as non-manufacturing.
I had suggested continuing DEPB and all other schemes and implementing an additional scheme of taking direct credit of the basic customs duty by the manufacturer-exporter along with CENVAT credit. Those who are not covered under Central Excise should opt for Brand Rate of Duty Drawback. If the Cenvat credit is allowed against the 16.5 per cent excise duty, then why it can’t be allowed against the basic customs duty at 5 per cent or 7.5 per cent. Cenvat credit is WTO-compliant and it saves the exporters from additional transaction cost and revenue loss. This issue has unfortunately slipped the attention of the Commerce Ministry.
The entire country is now debating the way the SEZs are being created. In my view, the government is not doing the right thing by clearing a huge number of SEZ proposals. We need our SEZs to be modeled on China. Thus, real manufacturing for export production should be encouraged instead of speculation of land.
