Budget 2020 | What India’s foreign exchange earners really want

Abhishek Jain

It is generally believed and argued by most economists that a rapid growth of exports leads to higher economic expansion. Last year’s Economic Survey bore all the tell-tale signs of that. Even the future blueprint is a proof of the India’s readiness to shift gears to push exports.

Aligned with this objective, the government in 2019 announced and implemented a slew of GST refunds-related measures to address financial hardships of exporters. Those included steps such as instructions not to seek proof of realisation of proceeds on exports or payment of tax before refunds are initiated when exports are delayed.

Given wide-ranging discussions on promotion of exports in the pre-Budget consultations by the Union finance minister, there is a general expectation of key announcements for the foreign exchange earners.

One such likely measure is the introduction of the earlier approved e-wallet scheme by the GST council. While the scheme was deferred for better evaluation of technical and legal aspects and requires the council’s nod for implementation, any assurance by the government in the Budget should help ease exporters’ financial worries and restore the trust factor.

At a time when there are headwinds blowing in the Indian economy, the WTO (World Trade Organization) panel coming down hard on India’s export incentives has aggravated the matter. Recently, the dispute panel ruled that India’s key export promotion schemes, including the MEIS (Merchandise Exports from India Scheme), the SEZ (special economic zone) programme and the Export Promotion Capital Goods, flouted WTO rules and should be discontinued. The MEIS, in particular, was earlier expected to be shelved from January 1.

While India has gone for an appeal, the exporters are worried.

At the same time, the government has come out with the Remission of Duties and Taxes on Exported products (RoDTEP) as a possible replacement for the MEIS. The contours are still being worked out.

Separately, a new foreign trade policy, which could bring good news to exporters, is expected to be effective from April. So, foreign exchange earners are looking forward to incentives and related budgeting of cash outflow in the Budget.

Any decision about contours of export schemes and incentives remains a prerogative of the Ministry of Commerce. However, a positive overall direction in the Budget and assurance of long-term continuity of policies would cheer exporters.

The other long-standing demand of Indian exporters is drawback incentives for exports to Nepal and Bhutan. Currently, as realisation of these exports in not in foreign currency, the businesses have not been able to claim a drawback of the duties paid on import of goods, which entails an additional duty cost.  This Budget could consider extending drawback benefits to such exports as well.

It could also consider proposals for reduction of export duty on certain goods such as bauxite, lower grade ore and the like for enhanced foreign currency earnings and better prospects of these businesses.

While some of the above proposals could be considered from a tax incentive perspective, wider policy measures to boost exports may be the need of the hour to help exporters as India looks to be a $5 trillion economy in the near future.

Abhishek Jain is Tax Partner, EY India. Views are personal.