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BUDGET EXPECTATIONS : EXPORTS

  • 23 Jan, 2023 |
  • 1:06 AM
  • The trade data for the month of December 2022 reflected the first visible signs of negative export growth on account of fears of global recession, slowdown in demand and rising inflation in most economies.

The weakness in exports was also confirmed by the FIEO President, Dr A Sakthivel. The fall in merchandise exports in December was a sign of tough global trade conditions amid piling inventories, volatile currencies and rising geopolitical tensions. Indian exports were also hit by the fall in commodity prices as well as the restrictions imposed on select exports to stem the domestic price spikes. 

On the positive side, imports are also lower and hence the trade deficit has been flat on sequential basis in December 2022. However, the budget cannot count on that for too long, since a spike in the price of crude can change the equation at short notice. Before we get into the expectations of Union Budget 2023-24 on exports, let us look at some key FIEO demands from the budget.

What FIEO wants from Budget 2023-24 to boost exports?

Here are some of the key expectations put forth by the FIEO to the government to boost merchandise exports in the coming year, despite challenging conditions.

  1. The FIEO has called for easy liquidity at competitive cost to export oriented units to be able to traverse through tough times. They have also called for extending the ECLGS scheme till March 2024 and restoration of the Interest Equalization support.

     
  2. FIEO has also demanded IGST exemption on freight on exports as well as extension of tenure of PCFC from 180 days to 365 days. The FIEO has also asked for the notification of Remission of Duties and Taxes on Exported Products (RODTEP) rates for the holders of Advance Authorization, DFIA and EOU units. 

     
  3. FIEO has also demanded a new TMA scheme for agri exporters and allocation of export development fund with corpus of Rs5,000 crore for aggressive overseas marketing by MSME to showcase Indian products globally. 

     
  4. Suitable waivers of electricity duty and easier availability of credit in the forthcoming Union Budget to boost outbound merchant shipments from India.

Addressing the slowdown in trade

For the FIEO, it is not just the export trade but the total merchandise trade comprising of exports and imports that has relevance to output, lateral businesses and jobs. Among other things, several export associations have asked for tweaks in customs duties and availability of credit at affordable rates, especially to MSMEs, as they account for 45% of exports. The Bombay Textile Association has also suggested specific waiver of electricity duty for the units that export more than 50% of production. 

Such manufacturers can be granted a script equivalent to 2% of their exports to compensate for handicaps that exporters suffer. The export associations are of the view that the best way to revive growth would be through exports and that was the experience of the Indian economy in the post-pandemic period. The situation is the same today, except that the current challenges are a slowdown in the global economy and rising inflation domestically and globally.

Setting export targets as share of GDP

The export lobby has suggested that the Union Budget 2023-24 should set specific export targets based on GDP share. For instance, in fiscal year 2021-22, the exports of goods and services as a percentage of GDP stood at 21.5%. This is much lower than the 30-35% that exports contribute to GDP across developing economies in Asia. Apart from funding support and duty holidays, the export sector also needs focused policy support. 

For instance, textiles and defence are two sectors where the exports got a smart boost due to the introduction of the focused production linked incentive (PLI) scheme. In addition, the export associations have also suggested that the government must allocate adequate budgets to setting up sector-specific clusters or parks with modern infrastructure. The budget must have a higher marketing budget allocation to take many of the MSME products deep into potential markets like Asia, Africa and Latin America.

Giving the big push to MSME exports

As per data for FY22, the medium, small and micro enterprises (MSMEs) accounted for over 45% of the total merchandise exports from India. That is a significant contribution but MSMEs believe that only the surface has been scratched and the potential to expand this franchise is still huge. One of the biggest demands for the MSME is adequate focus on developing export logistics infrastructure. Easy credit and support in overseas marketing are the other two major demands of MSMEs to boost exports MSMEs are also looking at credit subsidy, tax reliefs as well as granular  expansion of the Production Linked Incentive (PLI) scheme, among other supportive measures for the MSME segment.

Sector-specific export boosting demands from Budget 2023

There are several sectors where there have been focused demands for measures by the Union Budget to boost exports. For instance, the auto and auto ancillary industry has been asking for an increase in the all-industry rate of duty drawback and rate of Remission of Duties and Taxes on exported products (RODTEP) to enhance the exports. The textile segment  has been demanding more foreign trade agreements (FTAs) and a reduction in tariffs for encouraging export penetration globally. India recently completed FTA with the UAE and 12 other countries and a detailed FTA with UK is under discussion. 

Big thrust on Project Exports

That could be the big item on the agenda list for exporters. Typically, project exports refer to the setting up of engineering, construction or infrastructure projects abroad inside the framework of the Foreign Trade Policy (FTP) of the Indian government. Project exports are nothing by the export of goods or services on deferred payment terms till full execution of a particular project is consummated. Typically, project exports can encompass civil engineering and construction projects, turnkey projects, project construction goods and engineering consultancy services.

Focus on sectors to champion

In the export market, it has been win some and lose some. For instance, India has lost its pre-eminence in exports of textiles and gems & jewellery. However, India has built heft in auto, auto parts, specialty chemicals, generic pharma, APIs and even IT services. It is time to take up sectors to champion. There are the low hanging fruits like APIs, textiles and specialty chemicals where the PLI scheme has been of immense help. From a longer term perspective, India must also plan exports of EV batteries, green hydrogen etc. The export package must include incentives, market support, technology transfers etc. In a year when exports are likely to be under pressure, India needs the big narrative.

Must not ignore services trade

In the first estimate of FY23 GDP presented by MOSPI on 07th January 2023, it emerges that services exports have made up for the weakness in merchandise exports. While IT and ITES are well leveraged, India has not fully exploited the potential in offering healthcare to international patients at economical prices. A consistent flow of such patients also boosts the tourism sector that is struggling. For the year FY23, the focus must be on services exports as much as merchandise exports. India has a much better and ready service infrastructure compared to merchandise trade infrastructure. With 5G and huge bandwidth, services is what can help India out in the tough trading times.

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