Financial year 2021-22 ended on an exceptional note for India’s exports. According to the Reserve Bank of India (RBI), exports of goods and services were $683.7 billion, more than a quarter higher than the previous high of $545 billion recorded in 2018-19. Merchandise exports were $429 billion, which was particularly noteworthy as the psychological barrier of $400 billion was breached for the first time.
However, during this fiscal, this ‘feel good’ factor has become a thing of the past as merchandise exports have rapidly lost their growth momentum. After growing at 24 percent in the first quarter as compared to the corresponding period in 2021, merchandise exports had shrunk by 1.5 percent during July to November, largely due to a 17 percent contraction in October.
Global political and economic uncertainties have created substantial headwinds against which India’s exporters have found hard to cope with. Future prospects are hardly encouraging with international agencies predicting a significant economic slowdown in 2023. The World Trade Organization (WTO) had predicted that world merchandise trade volume is expected to increase by a mere 1 percent in 2023, as compared to 3.5 percent in 2022.
The current trends in merchandise exports’ slowdown that India is witnessing could, therefore, become worse, if the global trade prospects are any indication. With India’s merchandise imports expanding by over 20 percent during July to November as against a negative growth in exports, the current account situation could be under considerable strain, unless commercial services exports are able to defy the existing bearish sentiments.
The government’s moves to protect the interests of exporters would, thus, be watched with a great deal of interest. In our view, the government needs to support the exporters by providing immediate short-term support, while at the same time, it would have to design medium-term policies as well to support the exporters as global political and economic uncertainties are likely to remain as constant companions. Hopefully, the government can get its act together to unveil the much-needed foreign trade policy in the near future.
It would be some relief to the exporters that the government has already taken a proactive measure to enhance the level of export incentives that it currently provides using the Remission of Duties and Taxes on Exported Products (RoDTEP) Scheme. Introduced from the beginning of 2021, the scheme’s objective is to refund duties, taxes and levies, at the Union, state, and local level, borne on the exported product, including prior stage cumulative indirect taxes on goods and services used in the production of the exported product. The rates of remission of duties under the RoDTEP scheme is generally between 0.01 percent and 4.3 percent of the value of the export consignments.
In the first week of December, the Directorate General of Foreign Trade (DGFT) had notified that the RoDTEP scheme had been extended to cover 10,436 tariff lines at 8-digit of Indian Trade Classification based on the Harmonised System, which became effective from December 15. Prior to this modification, the RoDTEP scheme had covered 8,731 tariff lines. This was the second amendment to the scheme after it was made effective on January 1, 2021, covering 8,548 tariff lines. Until the more recent expansion of its coverage, the scheme had not included several important export-oriented sectors, including pharmaceuticals and chemicals.
Budgetary support provided to the RoDTEP scheme during its first year of implementation was Rs 13,000 crore, but the revised estimates for the year showed that the disbursements were lower than the budgeted figure by more than Rs 500 crore. The Union Budget for 2022-23 had initially made an allocation of Rs 13,699 crore, which was subsequently increased to Rs 14,245 crore. However, for fully implementing the expanded scheme in the current fiscal, the government would have to substantially increase the allocations for the remaining months of this financial year and the next.
In its recent report, the Rajya Sabha’s Department Related Parliamentary Standing Committee on Commerce had commented that the revised allocations “is not sufficient” to meet the requirements of the sectors that were earlier not included in the scheme.
Yet another relevant issue that the standing committee has repeatedly alluded to is that the notified rates of remission under the RoDTEP scheme are very low. This seems to be a valid argument and, therefore, the government needs to immediately undertake an exercise for reviewing the remission rates to ensure that the scheme meets its objectives. Budgetary allocations for 2023-24 for the RoDTEP scheme must be based on this exercise.
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