Hard to say if anxiety over size of RoDTEP allocation justified or not, but need for FTAs, labour reforms is genuine
Exporters may be disappointed, but the government’s latest initiative to encourage exports with an outlay of Rs 19,400 crore is a reasonably good one. Those that argue this is unexciting must view the allocation in the context of budget constraints and almost a whole year’s unpaid arrears under the erstwhile Merchandise Exports from India Scheme (MEIS).
To be sure, the tax refunds under the Remission of Duties and Taxes on Exported Products (RoDTEP) scheme, notified by the government on Tuesday, are strictly not comparable with the incentives under the MEIS. RoDTEP is WTO-compliant and seeks to reimburse exporters for duties paid across the supply-chain and, thus, make exports zero-rated. To that extent, the allocation of Rs 40,000 crore under MEIS should also not be compared with Rs 19,400 crore for RoDTEP and Rebate of State and Central Taxes & Levies (RoSCTL).
For their part, exporters are concerned the RoDTEP allocation of Rs 17,000 crore—over 15 months starting January 2021—might fall short of the amount needed to cover the levies paid across various stages of production but not subsumed by the GST. It is hard to say how much of the anxiety is genuine, and there is a need to wait and watch whether exports become uncompetitive vis-a-vis peer exporting nations, especially China. RoDTEP covers as many as 75% of the tariff lines and 8,555 products, with the rates ranging between 0.3% and 4.3% of the freight-on-board value of the exported products. The list includes some 1,000 more products than under MEIS.
Exporters in the steel, pharma and chemicals businesses are miffed because they have been excluded from the reimbursements; the government believes these sectors are doing well and, therefore, do not need to be reimbursed. Although this might seem unfair, these sectors have probably been excluded to accommodate others with greater needs. The government is clearly unwilling to commit larger sums at a time when the economy is yet to recover; the services PMI contracted yet again in July, indicating the biggest segment of the economy, accounting for 58% of the GDP, is yet to get back on track.
Buoyed by a revival in global growth and trade, India’s exports have been impressive in the current year and, at $131 billion, exports during the first four months of FY22 have been higher than that in the corresponding period of the previous four years. According to Credit Suisse, rolling 12-month exports hit a record high of $347 billion, with the momentum holding up in August. While this is no doubt encouraging, it is important not to get carried away because much of this comes off a low base. Exports were very subdued, at $291 billion, in FY21, thanks to the pandemic. But, even before that, exports had slumped to $262.3 billion in FY16 from $314.4 billion in FY14; they recovered only very slightly to $276 billion in FY17 before bouncing back to $303.5 billion in FY18. Again, exports are impacted by several factors. India’s exporters, for instance, have been opposed to FTAs though the government has been pushing for these. Again, New Delhi has been unwilling to become a member of a trading bloc like the RCEP, which, experts argue, should be done. But to boost exports, the government must ease labour laws which are way too restrictive, repair the poor infrastructure and also cut down the number of permissions and approvals required. That would make life a lot easier for exporters.