The implementation and refund delays under the goods and services tax (GST) regime may have led to working capital constraints for firms, which in turn might have hurt their exports in October 2017, a paper put out by researchers at the Reserve Bank of India (RBI) said.
Published as part of the central bank’s Mint Street Memos section, the paper noted that there was a recovery in subsequent months. “Post dismal performance of exports in October, November 2017 exhibited a whopping 30.55% growth. This is one of the highest growth rates observed in the exports in the last two years,” the paper stated, adding that the two possible reasons for the export rebound are the fast-tracking of GST refunds and exports sops and a lower base of export growth in November 2016.
The report credited certain initiatives by the government with having significantly alleviated exporters’ concerns. “We think that the expedition of GST refunds for exporters through active intervention by the government slackened the working capital constraints, thus allowing the exporters to finally fulfil their delayed export orders,” the researchers said.
“This explains some part of the sharp rebound in exports growth in November 2017. December 2017 numbers also continue to follow the increased trend,” they added.
The authors of the report said sectors with a high working capital requirement naturally returned to their long-run growth path in November 2017.
“We find that indeed the sectors with highest working capital requirements showed the highest exports growth rebound in November 2017. Also, the export growth difference between December-November 2017 does not depend on working capital thus implying that working capital constraint lost its significance in predicting sectoral exports growth in December 2017.”