The GST hurdle

Govt must act fast to remove problems faced by exporters

Merchandise exports from India have had a difficult few years. They went through several successive quarters of decline, even as competing countries such as Vietnam saw exports grow. India failed to enhance competitiveness in the face of weak global demand and capture a larger share of world trade. Attempts to do so have floundered not just in the face of unreformed domestic supply chains and factor markets, but also because of a rupee that is stronger than warranted, given India's balance of trade. Strong foreign inflows, first into equity and then into debt markets, have caused the rupee to stay elevated, which has further hurt exporters’ competitiveness and, eventually, their bottom lines. 

Now, an additional hurdle has emerged which exporters have to cross: The goods and services tax (GST). Even though the GST is a desirable change, yet the new indirect tax system has created several problems that exporters have highlighted in various representations to the government. Exporters have claimed that their order books have fallen by 15 per cent in the period ending October. They have also have expressed concern that the fall will be even larger going through the Christmas season, which has traditionally been a major one for exports from India. Exporters have further claimed that their costs have risen after the introduction of the GST regime by up to 1.25 per cent. In low-margin exports such as textiles, garments, and leather goods, even such a small increase in costs will lead to a major decrease in competitiveness and thus in the total orders — with consequent negative implications for firm size, firm survival, and employment. Exporters claim that the GST’s introduction is likely to hold back exports worth Rs 65,000 crore.

What are the problems that the introduction of the GST has created for exporters? Perhaps the most obvious one is that it could cause a major tying up of working capital. Exporters have the right to claim refunds on inputs that are used in the process of producing export goods. But the process is taking much more time than was envisaged because deadlines for the filing of returns are constantly being pushed back. In fact, refunds for taxes paid for the July period are only expected in December. Unfortunately, the government has not been receptive to these reasonable concerns, with an official statement from the finance ministry downplaying them instead. The government has also pointed to an existing duty drawback scheme that has been extended partially in order to deal with this problem. But exporters have said that, in reality, the extended scheme only goes so far, and securing refunds from state governments has proved to be very difficult. 

It is to be hoped that the government adopts a more cooperative attitude to exporters’ concerns. It has already made some adjustments, such as making it easier to claim refunds with only partial GST tax forms being filed, and by allowing some exporters to seal containers themselves instead of going to an official for the purpose. Exporters should be given a patient hearing, and such steps need to be taken so that the GST reform does not unduly pinch this important segment of the Indian economy.