CII wants end to inverted duty structure to make India an exporting nation

Industry body has asked for policies to hike country's share in global merchandise trade to 5% and services export to 7% by 2025

Amid the government’s move to increase tariff on some imports, industry body CII has suggested calibrating import duties carefully. It has asked for policies to increase the country’s share in global merchandise trade to five per cent and in services export to seven per cent by 2025.

“The general principle of higher duties on finished goods and lower/minimal duties on intermediates and raw material should be followed. Stability of policies is critical,” CII said in its paper on export strategy. .

A key point in the export endeavour is India’s participation in global value chains (GVC), it said, adding this necessitates an open and facilitating import environment that will encourage imports of components, intermediates and other inputs for domestic manufacturing which can be exported after value addition.

“Attracting global companies into this venture is critical for investments, employment and global linkages, and India’s large and growing markets are a central factor. Therefore, an open and facilitative import environment, on the lines of ASEAN, will serve as a significant inducement for India’s export mission,” it said.

The chamber said there is need for a calibrated management of the exchange rate to promote exports with strong capital inflows as the 36-currency export-weighted real effective exchange rate for India stands at about 116 for June 2020, indicating overvaluation of the rupee.

Pointing out that India’s cost of doing business in areas like access to capital, gaps in logistics, higher power and freight costs, royalty, state level taxes is a key disadvantage for export promotion, CII said the  proposed Remission of Duties and Tariffs on Exported Products Scheme (RoDTEP) needs to take into account multiple costs.

CII recommended setting up of an export task force headed by the commerce and industries minister to address all areas of export promotion with coordination of ministries, state governments, other organisations and industry bodies. It also called for a robust and overarching foreign trade policy when the current one expires in 2021. It should not be limited to incentives for exporters but extend across different areas for a holistic export strategy, CII said.

Key recommendations in various sectors:

1) Manufacturing:

a)  Automotive, Auto Components & Electric Mobility: Provide all the required benefits to everyone and not limit to export oriented units, wherein anyone having domestic tariff ara can compete, optimise the goods and services tax which is a cost for competitiveness, undertake comprehensive review of the taxation system, including the various cesses being levied by states

b) Chemicals & Petrochemicals: Export subsidies should bring about parity with China by increasing duty drawback rates as exporters prefer to import under advance licenses rather than buy locally. This would be WTO compliant. For Specialty Chemicals, sudden changes in duties should be avoided. For example, additional duty on ‘Other’ category should not be imposed. Separate harmonised system of nomenclature code can be instituted to avoid manufacturers resorting to ‘Other’ category

c) Electronics: Need for WTO-compliant scheme for providing an incentive of four per cent of freight on board value, income tax holiday on export earnings, DTA sales of zero duty electronics products manufactured in the country need to be given the status of physical exports and extended all benefits of export schemes, export obligations under Export Promotion Capital Goods (EPCG)  should be reduced.

d) Gems & Jewellery: Introduce a business to consumer export policy to enable exports directly to the consumer based on international gold rates (this should enable Internet sales of jewellery also), extension of the interest subvention scheme to the sector and increasing the subvention rate from 5 per cent to 7 per cent to protect the trade and foreign exchange earning of the country.

e) Leather & Footwear: Condition of maintaining annual average export obligation be removed, There was low usage of the EPCG scheme by the sector in previous year which was due to annual average export obligation. EPCG Scheme may be continued by removing annual average export obligation conditions for leather, leather products and footwear. This is already exempted for many sectors like handloom, handicrafts etc. The existing finished leather norms (i.e. norms for identifying finished leathers which are exported) were notified almost 10 years ago. Keeping in view the decline of finished leather exports by 45 per cent in the last 5 years and by 28.35% in the current year, there is a need to revise the norms, since many new finished leathers which are in great demand in the global market are not classified under the existing norms.

f) Petroleum: Import of crude petroleum oil attracts a national calamity and contingent duty (NCCD) at Rs 51 /tonee. The government is requested to exempt NCCD also on import of inputs made under advance authorisation, export of transportation fuels (Petrol, Diesel and Aviation Turbine Fuel) are not granted any benefits under MEIS or duty drawback (All India Rate). The only benefit available on export of these items is Advance Licenses which do not provide exemption from the only tax applicable on import of crude. This anomaly must be corrected.

g) Pharmaceuticals: Extend the newly announced product-linked incentive (PLI) for bulk drugs to brownfield projects, further, removal of investment cap on brownfield projects, create a special division such as a Pharma Bureau to help the industry obtain faster environmental clearances, land clearances, other required clearances for bulk drug parks, identification of key states/clusters for API development, include all fermentation products (53 APIs) in the policy scheme over and above the three major steroids already included thus far.

h) Steel: Reclassify HSN codes to reflect grades for better analysis of imports, the importers should be asked to declare grades for all imports to enable the domestic players to get a full idea of the imports coming into the country, map imported grades with grades of steel manufactured in India to carve out specific areas of focus for the steel industry.

i) Textiles and apparel: Build global competitiveness through mega textile and manufacturing parks, robust infrastructure, integrated value-chain and cluster development, minimize non-productive movement of the products across the country to reduce cost & improve turnaround time for exports, gradual phasing out of cross subsidies to reduce cost of power and committed clearances of shipments within 24 hours to increase lead time, free trade or preferential trade agreements with EU, USA and UK to be done on top priority, review existing FTAs in product lines of India’s interest

II) Services: Continue Service Export from India Scheme (SEIS) under the foreign trade policy and notify it at the earliest for another year till new policy is announced, reorient champion services export sectors to identify those which can be delivered remotely – some of these could be education, healthcare backend work, accounting and legal services, financial services, and so on • institute specific skilling programs for digital services trade.