The government has projected an ambitious target of $1 trillion of merchandise exports and $1 trillion of services exports. From the base of $535 billion, achieved during 2018-19, this is a tall order but within the realms of possibility. However, this requires a comprehensive long-term strategy with medium and short term goals which needs to be analysed and evaluated at frequent intervals, to keep them within the broad contours of the long-term strategy.
The key challenge faced by the country is its limited exports basket. Indian exports are not significantly present in the segment in which major global trade is happening. Our share in medium and high technology exports, electronics goods and office automations are almost negligible. The budget should encourage investments in such sectors through investment-linked benefits, so as to exploit the growing export market since we have a large pool of technical manpower to provide competitiveness to such exports .
Inward FDI may be encouraged so as to bring technology and develop cluster-based MSMEs in hub-and-spoke model. The reduction in corporate tax would be a step in that direction particularly when companies in the US and China, facing the heat of tariff war, are looking for investment in India so as to produce both for domestic consumption and exports. However, the reduced corporate tax in the US can be a dissuading factor and thus reduction in corporate tax would act as stimulus.
R&D and product innovation are integral parts of sustained exports. Unfortunately, India’s R&D spending is considerably low when compared to South Korea, Israel, Scandinavian countries, China and the US. R&D investment and product innovation, being long gestation activity with uncertainty, should be encouraged by providing 200 percent tax deduction.
On customs front, the instances of inverted duty structure needs to be looked into. More importantly, the end-use exemption for the domestic industry on inputs required for manufacturing of products imported through FTA route should be given forthwith to push domestic manufacturing and imports substitution .
Striking a balance between duty-free import of technology and level-playing field to domestic capital goods industry is a tricky issue. However, the budget should look into reducing customs duty on capital goods which are not produced in the country so as to do justice with both entrepreneurs as well as domestic capital goods industry.
For MSME exporters, marketing and showcasing of their products require substantial expenditure. The current support extended through various schemes is grossly inadequate. We require an export development fund with a corpus of 0.5 percent of export value so that MSMEs aggressively participates in international exhibitions and trade shows.
The share of exports of brands in our exports is miniscule. This is also the reason for extreme price sensitivity of Indian exports. The government should look at branding a product or produce as has been done by Israel -- all citrus products which are marketed by the government under a brand name showing it a produce of Israel. Individual brands may be encouraged through tax deductions on expenditure made in developing such brands by clearly defining the various elements of the same.
Creation of employment is the biggest challenge faced by the country. If we have to reap demographic dividends, we have to provide jobs to millions who are seeking jobs on month-on-month basis. We would urge the government to provide support to units who provide additional employment in export sector. Such a scheme will also help the workers to move from informal employment to formal employment, which is a priority of the government. Incentives may be provided based on twin criteria of growth in exports and growth in workers so that while on the one hand exports are increased, on the other, the employment intensive units also get a boost.
A lot of micro and small exporters would like to get all refund for exports at one place. At present, for refund of the basic customs duty, they have to get duty drawback and for refund of Input Tax Credit (ITC), they have to file separate application. This adds to the transaction time and cost. We, therefore, propose a comprehensive Duty Drawback Scheme which covers the incidence of both basic customs duty and ITC. The Drawback Committee may calculate two rates, one covering only basic customs duty on the inputs and other including both basic customs duty and ITC. The exporters who wish to avail comprehensive drawback will forego GST claim. This will provide huge relief to micro and small exporters particularly in carpets, handicrafts, textiles, agro and allied sectors where they take supply from unregistered suppliers and find it extremely difficult to keep detailed record required for ITC refund.
Ajay Sahai is Director General and CEO of Federation of Indian Export Organisations.