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Exporters are expected to get a hefty stimulus package tomorrow when the government unveils the annual supplement to the Foreign Trade Policy 2009-2014. The package, expected to be worth Rs 1,500–2,000 crore, will have special incentives for engineering, textiles, leather exports and special economic zones, among others.
During the first 11 months of FY13, merchandise exports declined four per cent at $265.94 billion, against $277.12 billion in the corresponding period of the previous financial year. Total imports for the period stood at $448.03 billion, registering a marginal increase of 0.25 per cent from $446.93 billion from the previous financial year. This has resulted in an unprecedented widening of the trade deficit to $18.20 billion, up from $169.81 billion in the previous year. The current account deficit (CAD) as a percentage of GDP stood at 6.7 per cent in the third quarter of FY13.
The decline in exports was mainly on account of fall in shipments of engineering goods, gems and jewellery, textiles, and petroleum products that make up almost 80 per cent of India’s export basket. During April-January (in FY13), export of engineering products, gems and jewellery, textiles and petroleum products declined by four per cent, 10 per cent, eight per cent and four per cent, respectively due to a massive slowdown in demand from the US and European markets.
“Diversification of export markets, improvement in export infrastructure, provision of refund of all indirect taxes and levies would be useful in attaining our export targets,” said Adi Godrej, chairman of the Godrej group and past president of the Confederation of Indian Industry.
The government is yet to release the final export-import numbers for March. Merchandise shipments have to be over $34 billion in March for the cumulative exports to touch $300 billion in FY13. Even if the outbound shipments touch $300 billion, it would still be a far cry from the $350 billion target set by the Anand Sharma, Union minister for commerce and industry, and textiles. It would also be lower than $305 billion achieved in FY12.
“The FTP (foreign trade policy) should ease availability of dollar-denominated credit. The cost of credit has gone up substantially in India and even after factoring 20 per cent interest subvention. The cost of rupee credit is over 10 per cent for MSME (micro, small and medium enterprises) exporters. Most of the banks are not providing subvention upfront,” said M Rafeeque Ahmed, president, Federation of Indian Export Organisations.
Some of the main demands made by the exporters this time are extension of 2 per cent interest subvention to all sectors of exports, inclusion of traditional markets, especially the US, under the Focus Market Scheme and refund of taxes.
Besides, this year, the government may give a major thrust to the units situated inside special economic zones (SEZ), which enjoy a 100 per cent income tax exemption for the first five years of operations. This was supposed to come as part of Budget 2013-14. Now, the government is likely to announce some major schemes in the FTP.
The zones are facing rough weather ever since the government imposed a minimum alternate tax (MAT) and dividend distribution tax (DDT) in the 2011-12 Budget. Units were levied MAT, while developers both MAT and DDT. Of the 58 SEZs formally approved, 38 have been notified but only 161 are operational.
“The scheme announced in FTP may be extended by three years up to the year 2015-16, so that exporters can plan their marketing strategies on long-term basis. The FTP should be more inclusive and flexible for garment exporters,” said A Santhivel, chairman, Apparel Export Promotion Council.
As a long-term measure, the government is likely to create an Export Development Fund with a specific corpus, which will be provided as an incentive for exporters to venture into newer markets. This is because the demand in traditional markets of US and Europe has seen a sharp decline and is not expected to rise any time soon.
The commerce ministry had set a target of doubling India’s exports by 2014 to reach $50 billion and double the country’s share in global trade by the end of 2020 to become a major player in global trade.
