The Union Budget, while recognising the rising cost of credit as a factor leading to deceleration in industrial growth, made no attempt to insulate exports from its adverse effects, despite the fragile global recovery.
The interest subvention for exports was expected to be extended to cover all sectors for a year or more. However, this was not done, even for the existing sectors. The worst affected would be MSME exporters, who are hit the most by interest rate hikes.
Global trade is likely to grow by a meagre 3.8% this year. This would impact demand and, thus, while pricing will be the key, buyers would ask for longer credit periods as inventories will take time to clear. Small exporters will think twice before using the ‘credit period’ as a marketing tool when they have to absorb high interest rates. Thus, we run the risk of losing orders where the margins are already wafer-thin. The interest rate differential between Indian exporters and our Southeast Asian neighbours is over 5%. If the whole cycle of procurement of raw material to realisation of payment of exports takes 12 months, the exporter loses 5% competitiveness.
The introduction of a negative service list to remove all ambiguities is appreciable. However, I am disappointed not to find services used exclusively for exports under the list. On the contrary, services by way of transportation of goods by an aircraft and vessel from a place outside India to the first customs station of landing in India has been covered in the negative list.When import-related services are in the negative list, why not the export-related ones?
The focus on infrastructure, both roads and power, is praiseworthy and so is the government’s decision to invest over $1 trillion in infrastructure during the 12th Plan Period
The Delhi Mumbai Industrial Corridor, built with an investment of about $20 billion, will not only facilitate cargo movement, but also give a boost to the National Investment and Manufacturing Zones, aimed at taking the share of manufacturing from 16% of GDP to 25%.
Continuing with the weighted deduction of 200% till March 2017 will help the new and emerging sectors of exports, such as electronics, pharmaceuticals, auto components, automobiles and a host of engineering, chemicals and plastic sub-sectors of exports. An enhanced 150% weighted deduction to setting up of cold chain and warehousing facility for agriculture produce will help agro-processed exports and address the issue of wastage as about 30% of the total production of fruits and vegetable is wasted in our country.
Reduction in the customs duty on artemia and marine sea water pumps will help marine exports. While the government has increased duty on gold and precious metals for the second time in just three months, it should revise the duty drawback rates for gem and jewellery as early as possible and make it effective from the date of the earlier hike.
I am happy with the announcement to withdraw the withholding tax on oil payments kept in a separate pool for rupee trade with Iran. This will facilitate the payment process and, now, the ball is in our court to seize the opportunities which exist in Iran for exports.
(The writer is president, FIEO)