India's merchandise exports declined by 18.6% to $73.73 billion in the second half of 2008-09 compared to growth of 30.9% recorded in the first half 2008-09.
Thus, for the whole of 2008-09, exports rose marginally by 3.4% to $168.7 billion against the target of $200 billion set for the period. However, exports tumbled 33.2% to $10.74 billion in April 2009, taking the falling streak to straight seventh month, as the global recession continued to take toll on global demand.
The fall in exports has obviously been due to the severe recession in the major exports destinations like US, Europe and Japan, which nearly accounts for nearly 42% of the exports.
The worst global recession seen since the Great Depression has curtailed demand for the India's gems & jewellery, ores & minerals, marine products and handicrafts, etc. On a negative note, all product groups have recorded sharp fall in exports, except electronic goods and engineering goods, during the second half of 2008-09.
However, sharp depreciation of rupee in 2008-09, helped the exports to accelerate 29.0% to Rs 766935 crore compared to 20.4% growth posted in last fiscal. But majority of the gains were erased due to heavy hedging losses on adverse hedging of local currency against dollar.
Thus the exports sector, one of the leading employment generating sectors, has laid-off many workers, particularly in gems and jewellery and textiles sectors.
According to the Federation of Indian Export Organisation, the government has to address the prime concerns of the sector, including high interest rates, static refund rates and inadequate market and product support to trade and industry. Some of the core expectations of the industry are as follows,
Industry Expectations
Indirect tax:
DEPB and Drawback rates may be enhanced by 5%: To neutralize fiscal stimulus packages given by competitors including higher VAT rate for exports in China, Vietnam, Bangladesh, etc, FIEO suggest that Drawback and DEPB rates may be increased by 5%.
Import of Capital Goods under EPCG Scheme should be at Zero duty: to help exporters in minimizing the cost of procuring capital goods thereby reducing cost of production. If domestic capital goods industry can provide such capital goods at competitive rates, none of the EPCG license holder will go for direct imports.
Customs Duty on raw materials should be reduced to address inverted duty structure: it has been observed that in some cases raw material attracts higher percentage of duty than the finished product. For example raw silk, dupion silk, etc. attracts higher duty than silk fabric.
Abolition of Customs Duty on Specified Textile & Garment Machinery and Spare Parts for General Machinery so that Textile Industry modernize their units and it become more competitive in international market.
Service tax:
Waive service tax on all services used during the course of exports: in view of enormous time consuming paper work involved in process of filing service tax, delay in receiving refund on tax and high transaction costs involved, the FIEO has requested Government should give exemption from service tax on all services used during the course of exports.
Time limit for filing service tax: currently the time limit for filing of service tax claim is either 180 days from the date of payment of service tax or realization of export proceeds, whichever is earlier. This mode of filing becomes difficult in case of agency commission, where payment is made by post receipt of remittance. Thus the council recommends linking the time limit with date of payment of service tax or realization of exports, whichever is less.
Removal of 10% cap on Foreign Agency Commission: In certain sector the commission charged for marketing new products is high. Also owing to recession, buying agents are also demanding higher rate of commission from exporters, which is putting pressure on their margins. So the removal of 10% cap is likely to help exporters to protect their margins.
Service Tax may be waived off to FIEO, EPCs/Exports Organisations/Associations to boost export promotion and development activities.
Direct Tax:
Income tax exemption on exports profits for five years: Exporters are working on thin margins and tax on those profits will leave them with inadequate fund for expansion and modernization. Thus a tax holiday of five years will prove as a boon to them and help them stay competitive.
Waiver from FBT to export units and Exemption from application of MAT on 100% EOU: export units are suffering badly due to increasing competition and recession. Additional taxes are further discouraging these exporters from exploring new untapped markets, which is need of the hour. Hence Government should consider saving them from additional tax burden.
To treat unabsorbed business loss in par with depreciation loss: section 72 permits carry forward of business losses for a period of eight years succeeding the year in which such loss was first incurred. This act discourages projects with long gestation periods or projects that have made loss in initial year. Thus the council has requested the FM to treat unabsorbed business loss in par with unabsorbed depreciation losses wherein the loss is allowed to be carried for indefinite period.
Others
Settlement of Derivative losses on no profit no loss basis: Many exporters have lost substantially in derivatives products, to the tune of Rs 2000 crore, offered by financial institutions at a time when exporters hedged their risk in the wake of appreciation of Rupee.
Availability of exports credit at 7%: The cost of credit in India is very high comparable to international benchmarks. Despite reduction of PLR, export credit is available to exporters at 10-12% as against less than 5% in South East Asia.
Regulation of Banking charges: Banking charges needs to be regulated. Banks are charging 1% fee for renewal of limits, which on a limit of Rs 10 crore works out to be whopping Rs 10 lakh. Banks may be asked to reduce fee for initial sanction of limit to 0.25% and no fee to be levied on renewal.
Creation of Export Development Fund (EDF) for MSME exporters, with a minimum corpus of Rs 5000 crore, particularly for traditional products.
Analyst Expectations
Union Budget 2009-10 is set to give fiscal benefit to exports in general and to export oriented sectors like textiles, gems and jewellery, leather, etc in particular.
Outlook
As many of the export oriented sectors are also labour intensive, it has become imperative for the government to facilitate exporters to improve their global competitiveness.
Otherwise, the already fragile employment situation will become worse. So, the Union Budget 2009-10 is expected to be positive for the exporters in general and export oriented sectors like textiles, gems and jewellery in particular.