Post-GST haze may delay foreign trade policy

The mid-term review of the Foreign Trade Policy (FTP) is struggling to meet its September deadline, despite being pushed back from its initial release date of July 1, sources say.

 

Senior government officials claimed work was on the fast track. But they were not sure if the revised policy can be released by September. Assessing the effects of the goods and services tax (GST) regime on the export system and the export promotion schemes were throwing up new challenges every week, they explained. As of now, the government is busy trying to deal with the issue of exporters losing a major chunk of their working capital, because of GST. Complaints by exporters regarding reduced utility of duty credit scrips, which only cover basic Customs duty and not the integrated GST, were also being looked into, a senior commerce ministry official said under condition of anonymity.

 

The government had brought forward the FTP release date to coincide with July 1 GST roll-out. But the date had to be deferred to take into account the post-GST changing trends in trade.

 

Exports nationwide were stuck as small and medium companies faced transitioning difficulties and also because the overhaul of the export infrastructure was slow. They now also have to deal with state tax authorities who were not familiar with export procedures and, therefore, not willing to endorse documents. All this happened even as the government moved fast to make key changes to procedural norms — including clarifications on calculation of currency exchange rates for drawback, changes to certification procedures and provisions changing the requirement of bonds and letters of undertaking.

 

Export promotion schemes

 

Discussions have also continued over the fate of several export promotion schemes, despite the latest Economic Survey pointing out the need to phase out or streamline some. “Many duties have been subsumed under the GST and if tariffs are reduced to be realised or near realised levels, some export promotion schemes can be phased out,” the Survey had said.

 

Senior officials have, however, uled out significant changes to export promotion schemes, owing to their scale and the lack of alternative ones. “… any major changes to the scheme will affect exporters significantly,” said L Badri Narayan, taxation partner at law firm Lakshmikumaran & Sridharan. Recognised exporters of manufactured goods receive credit incentives, generally in the form of duty drawbacks. The three major sector-specific ones are the Advance Authorisation Scheme, Export Promotion Capital Goods Scheme and the Merchandise Exports from India Scheme.

 

Trade target

 

Officials suggested differences of opinion about whether to reduce the current export target of $900 billion was also holding things up. Senior commerce and industry ministry officials had earlier said the target might be reduce, after exporter bodies had informed the government of difficulties in meeting the target. Federation of Indian Export Organisations Director General Ajay Sahai said exports would need to grow at a compound rate of 27 per cent annually till 2020 for the existing target to be reached.

 

The introduction of the GST and the ensuing confusion over the operation of export promotion schemes slowed exports, further dragging down the prospects of the sector. “With global trade growth forecasts still slow at 2.4 per cent, I’m expecting a compound growth of 15 per cent annually for India’s exports,” Sahai said. This will allow exports to reach a cumulative $700-750 billion by 2020, he added.

Whats keeping the govt busy

  • The govt is busy trying to deal with the working capital loss suffered by exporters
  • Complaints by exporters on the reduced utility of duty credit scrips are being probed
  • Discussions have also continued over the fate of several export promotion schemes, despite the Economic Survey pointing out the need to phase out some or streamlining them
  • Differences of opinion about whether to officially reduce the current export target of $900 billion was also holding things up

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