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What exporters need to understand...

By T N C Rajagopalan
Last updated on: June 29, 2009 16:36 IST
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As usual, industry associations have presented their wish lists to the finance ministry, suggesting various changes in the policies and tax structure that they want to see in the Budget 2009.

Exporters, led by the Federation of Indian Export Organisations, have also come up with their own demands hoping that at least some of their expectations will not have to wait till the announcement of the Foreign Trade Policy, but will be dealt with in the Budget.

The justification for most of the demands of the exporters is a 'level playing field.'

The president of FIEO said that as India's competitors such as China, Vietnam, Thailand and Bangladesh have been selling their products at lower prices, bolstered by support from their governments, our government also should match such support.

The tax refund rate from India's competitors has gone up from 8-9 per cent to 15-17 per cent with their interest rates at 5.5 to 6 per cent. Against this, refunds under India's export promotion schemes, such as drawback rates and the Duty Entitlement Passbook rates remain very low and export credit interest rates, even with subvention, remain high at 9.5-10 per cent range.

Therefore, demands FIEO, our government should raise DEPB/drawback rates by 5 per cent for exporters, abolish fringe benefit tax, re-introduce income-tax holidays, exempt service tax for exporters and also augment the assistance to Rs 5,000 crore (Rs 50 billion) for development of new markets/ products.

Similar views have been echoed by other industry associations and export promotion councils.

I recall that since over three decades the exporters have been saying the same or similar things.

It was in response to constant complaints of high taxes, bureaucratic hassles, poor infrastructure, high interest rates, rigid labour laws, multiplicity of monitoring agencies, inspector raj and so on that the government came up with the special economic zone scheme. The government bent backwards to help SEZ developers and SEZ units and gave them whatever they asked for. Yet, the complaints continue.

The exporters need to be told sometime or the other that the playing field can never be the same for all countries.

Every country has its own advantages and disadvantages in terms of its natural endowments, capabilities of its manpower, stage of development, levels of technology absorption and so on. Each country has to make the best of what it has and carry on.

India has enough advantages to build on in terms of its geography, manpower, ability to absorb technology, individual freedom, ability to raise capital and institutional support, besides others.

The long-term export growth can come from building excellent infrastructure and adopting first-rate technology. Of course, taxes should not be exported and rebate of taxes has to be hassle-free and quick and legal framework must not be disenabling. These expectations are legitimate.

However, increasing subsidies to match what other countries give will only push us into a different ballgame.

Exporters must face the possibility that recession in rich countries may last longer than expected and the fact that the task of getting more competitive and diversifying into newer markets is that of individual exporters.

Seen from that perspective, exporters must ask the government to focus on infrastructure, technology upgrade and simpler tax regime, besides fiscal prudence that can ensure lower inflation and interest rates.

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T N C Rajagopalan
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