Uncertainty persists for exporters after implementation of GST

Context:

The Federation of Indian Export Organisations (FIEO), the apex body for the country’s exporters, pointed out that the Goods and Services Tax (GST) regime would impact the liquidity of the exporters and in turn hurt export competitiveness.

Introduction:

• Exporters used to get ab-initio exemptions from duties before implementation of GST. Now, they have to pay first and then seek refund. Due to this process, the FIEO stated that about Rs 1,85,000 crore will get stuck with the government..
• Exporters are worried about liquidity issues as the refund mechanism would require payment of GST first and get refund subsequently.
• The government is looking into various options to neutralize the impact of the GST regime on the export sector.

Meaning of Exports:

Exports are the goods and services produced in one country and purchased by citizens of another country.

Statistics related Indian Export:

Exports from India increased 4.39 per cent year-on-year to USD 23.56 billion in June of 2017, the smallest gain since January this year. Sales increased mainly for engineering goods (14.78%), petroleum products (3.6%), organic and inorganic chemicals (13.2%), rice (27.29 %), and marine products (24.27%). Shipments of non-petroleum and non gems and jewelry added 6.02%.

Status of export in India:

• Exports have been shrinking since December 2014 to September 2016, due to weak global demand and slide in oil prices.
• India’s exports reversed the negative trend in June 2016, when it grew 1.3% after remaining in the red for 18 months. However, shipments again fell 0.3% in August and 6.8% in July.
• The government is aiming at lifting India’s share in global exports to 5% by 2020, from just 1.6% now.

Problems related to export sector in India:

The major problems faced by Indian export sector

• Procedural complexities and institutional rigidities
• High Costs- Technological factors and low productivity contribute to high costs of production. The traditional export sectors of textiles and jute have already suffered a lot due to lack of modernization, whereas many other competing countries have made rapid strides in this regard.
• Unreliability: Besides quality, Indian exporters are regarded as unreliable on certain factors such as going back on a contract and refusing to fulfill it on its original terms. While exporters from competing countries like South Korea, Japan and Taiwan normally replace a defective consignment free of cost and without taking much time.
• Infrastructural Bottlenecks: In India, power shortages and breakdowns disrupt production schedules, inadequate and unreliable transport increase costs and adversely affect timely shipments and lack of communication facilities hider growth of exports.
• Inadequacy of Trade Information System: In India, because of poor facilities of communication, when compared to developed countries, it is not possible to depend on internet for obtaining latest trade information.
• Supply Problems: It is a serious drawback of the Indian export sector in its inability to provide continuous and smooth supply of adequate quantities in respect of several products
• Faceless Presence: Indian exports are sold in foreign markets in the same condition as they are exported but under foreign brand names.
• Uncertainties: One of the defects of our trade policy regime has been the uncertainty about future policies, incentive schemes, etc. The import export policy has given a five year span to bring about the same stability; however, still a very large number of amendments are affected each year.
• Domestic problems such as an electricity shortage continue to hamper export manufacturers.
• Other infrastructure issues such as rail, road and port connectivity are not keeping up with demands of the present day.

Possible consequence of GST on exporters:

• The GST will severely dent the liquidity of the exporter and increase the compliance cost of merchant exporters.
• Export sector would be losing export competitiveness by about 2% and this will be a big blow for exporters.

Challenges faced by export sector in India:

• Many constraints like financial constraints, credit constraints or export constraints poses major challenge before export sector in India.
• High government control is one of the biggest challenges faced by the Indian export sector.
• The Indian trade policies are not on the pace with the international trade policies or requirements.
• An increase import tariff dissuades many exporters to make trade in India. Increased import tariff leads to an appreciation in the real exchange rate of the country.

Solutions:

• The government should frame policies which gives boost to the exports.
• India must look for potential market to sell their goods.
• The need of the hour is to support exporters and grant increased access to working capital from banks to tide this short-term liquidity crunch.
• Improving competitiveness by investing in infrastructure such as better connectivity through roads and ports, coal availability, labour reforms, and flexibility in factor markets will aid in sustainable export growth.

Government’s initiatives:

The Government has launched several schemes and measures to increase India’s share in global trade, which are as follows:

• The Merchandise Exports from India Scheme (MEIS) was introduced in the Foreign Trade Policy (FTP) 2015-20 on April 1, 2015 with 4914 tariff lines at 8 digit levels.
• The Government launched Services Exports from India Scheme (SEIS) in the FTP 2015-2020. The Scheme provided rewards to service providers of notified services who are providing service from India.
• The Government is implementing the Niryat Bandhu Scheme with an objective to reach out to the new and potential exporters including exporters from Micro, Small & Medium Enterprises (MSMEs) and mentor them through orientation programmes, counseling sessions, individual facilitation, etc., on various aspects of foreign trade for being able to get into international trade and boost exports from India.
• Interest Equalization Scheme on pre & post shipment credit launched to provide cheaper credit to exporters.
• The Government continues to provide the facility of access to duty free raw materials and capital goods for exports through schemes like Advance Authorization, Duty Free Import Authorization (DFIA), Export Promotion Capital Goods (EPCG) and drawback / refund of duties.
• Merchandise Exports from India Scheme (MEIS) incentivises exports made to all countries w.e.f May, 2016
• Scheme for implementation of National Manufacturing Policy approved by the government. Setting up of National Investment and Manufacturing Zones(NIMZs) are an important instrumentality of the policy.
• Ease of doing business (e-Biz Project): The e-Biz Mission Mode Project launched as one of the 31 Mission Mode Projects under the National e-Governance Plan, aims to create a business and investor friendly ecosystem in India.

Top 3 export Trade partners of India:

• United States
• United Arab Emirates
• Hong Kong

Conclusion:

In the global economic environment of present day, developing countries, including India, are facing throat-cut competition in international market. If India is to become a major player in the world trade, she needs to take a comprehensive view for the overall development of its foreign trade. Foreign trade policy and other economic policies must be coherent and consistent so that they may make maximum contribution to achieve the object. The process of economic reforms and increasing role of WTO has transformed almost all the sectors of Indian economy, including external sector. The rules of foreign trade game are being redefined, international business practices are changing and competition is becoming more intense. In this scenario, role of export promotion measures gets manifold. Thus, the support of export promotion measures and institutions becomes very important. Apart from these, India needs the right mix of policy formulation sector focus and industry led initiatives to move up the value chain in the global export basket.