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Exports to steer through challenges

24 October 2011

Source :  Ramu S. Deora, President, FIEO

India is the cusp of a historic transformation which is to encompass Asia and could transcend the existing growth and development parameters by capturing a large share of manufacturing/distribution /off shore activities that may come to India as part of the ongoing process of re-distribution by Western economies to future centres of consumption.

 We are, therefore, in the midst of opportunities which can enable us to achieve a higher trajectory of growth, raising the per capita incomes of our vast manpower resource base with the right mix of policies and strategies which will enable us hold forth more confidently striding towards an era of sustainable growth, equity and participation through an inclusive export vision of the country.

 However, the task is never going to be easy in view of recent  global development The global challenges are assuming greater significance for exports with WTO downwardly revising its forecast of  growth in global trade from 6.5% to 5.8% for 2011 . I am sure these figure will be reviewed again as crisis is spreading far and wide. Our export growth after climbing to over 80% in July has nose dived to 36% last months. However, over 50% growth in exports in first six months of the fiscal is no less an achievement.  Export growth is tapering off in China, the leading nation in exports in 2010, and this does not auger well for future. We have to live with these developments as being part   of a global economy, we are not insulated from these challenges.

 Contrary to popular belief, the depreciation in the exchange rate of Rupee  is not going to significantly benefit our  exports as it is expected to be short lived and most of the exporters have already hedged their exports at Rs.45-46 to a dollar. On the contrary, the depreciation will make imports costlier and thereby fuel the inflation. The present depreciation will also swell our trade deficit and will make it difficult to manage. Therefore, RBI should ensure against high volatility in exchange market through selective intervention.

 Another challenge is the high cost of exports credit. With the adoption of base rate, dispensing with concessional export credit, and frequent increase in the base rates, the cost of export credit has gone up substantially in last one year. Rate of interest for Rupee Export credit has already crossed over 11.5% and many banks are charging as high as 13.%. The average credit rate for exports is about 12%. Government has recently introduced 2% interest subvention scheme for MSME manufacturer exporters and exporters of highly labour intensive sectors of Handicrafts, Carpets and Handlooms with effect from 1st April, 2011. The 2% subvention will not meet the aspiration of exporters as even factoring of the same will take export credit to over 10% at a time when credit rate in most of our competing partners is less than 5% and below 2% in Euro zone and US.

 Indian exports are burdened with the incidence of State and local taxes. These levies are making our exports more uncompetitive. We thought that GST, even two tier GST, will provide some relief as state duties can be offset under State GST. However, the goal poles are shifted and its introduction from next financial year is highly unlikely given the constitutional amendments required in the meantime.  Therefore, State Taxes like, Sales Tax on Petroleum products, Purchase Tax, Turnover Tax, Octroi, Electricity Duty, etc. should be refunded to exporters through some schemes to impart competitiveness to exports and ensuring zero rebating as well.

 High transaction costs are another bane of Indian exports. Department of Commerce has put it between 5-8% of exports .The cost can be brought down substantially with effective EDI. It is imperative that all 13 community partners like Customs, DGFT, Banks, Ports, Airports, Shipping Agencies, Export Inspection Agencies and other regulatory agencies that are involved in the process of export and import should be brought under EDI for rendering highly effective and efficient EDI enabled services to exporters and importers.  All these departments may have to upgrade their EDI set up within a fixed time frame. Such effective interface will help in reducing transaction time and cost.

 Government has provided another support package on 13th October worth Rs 900 Crore. Engineering, Chemical and Pharmaceuticals sectors have been provided 1% additional benefits for next six months. Out of 110 Focus MARKET Countries, 39 countries have been shifted to Special Focus Market Scheme. Two new countries  Mexico and Cuba have also been brought under it taking total 41 countries. These 41 countries are eligible for 4% benefits on exports. Both woven and knitted garments have been made eligible for MLFPS for exports to USA and EU for the current financial year These exports will get 2% benefit. Similarly, export of Agriculture Tractor of over 1800 CC will be eligible for MLFPS for exports to Turkey. Sugar machinery and High Pressure Boilers would be eligible for MLFPS benefit for exports to Brazil, Kenya, South Africa, Tanzania and Egypt. The list of FPS has been extended to include 130 additional products of Textiles, Engineering, Handicrafts, Chemicals, Pharmaceuticals and Electronic sectors.

 The ball has been placed in our court and let us use our skills and strategy to survive in the tough situation. When going gets tough, the tough gets going and let us demonstrate it to the world.