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Major implications of the Budget 2014 on India's Foreign Trade

Thursday, 10 July 2014 - 9:18pm IST | Place: Mumbai | Agency: dna webdesk

While some of the budget announcements are indicative of future direction on the whole, the budget provisions seem to have little impact on the ground level.

The original export target set up in the year 2009 was $500 billion, which was revised to $325 billion. However, the actual exports registered in FY 2013-14 were $312.36 billion. With upward revision in Oil prices and increase in trade deficit, it is a matter of prime importance to take proper steps to increase exports. Though the world economy has stabilized to some extent, situation in Iraq, Syria and Iran continues to be of great concern. 

It was therefore believed that the new government would take lot of steps to accelerate export growth and announce them in the Budget. While some of the budget announcements are indicative of future direction on the whole, the budget provisions seem to have little impact on the ground level. 

Changes in Customs and Excise duties:
Changes made in Customs and Excise duties would not really impact the growth in exports as taxes and duties are any way exempt under Duty Exemption Scheme (with reference to inputs) and under Rule 19 of the Central Excise Rules, 2002 (with reference to output). These changes therefore would not make a huge difference for accelerating exports. 

The change in the basic duty structure on “Fatty acids, crude palm stearin, RBD and other palm stearin, specified industrial grade crude oils” for manufacture of soaps and oleo-chemicals would however, make solve problems of Export Oriented Units (EOUs) while effecting domestic sales and give level playing field to domestic manufacturers. This would also help the domestic manufacturers to overcome the impact of zero duty imports under the India-ASEAN Free Trade Agreement. 

Reduction in duty on forged steel rings used in the manufacture of bearings of wind operated electricity generators and rationalization of duty structure on all non-agglomerated coal would definitely help the industry in the long run to reduce the cost of electricity. 

Special Economic Zones (SEZs): 
The Finance Minister has indicated that the Government is committed to revive the SEZs and make them effective instruments of industrial production, economic growth, export promotion and employment generation, however, the actual steps are yet not elaborated. Removal of Minimum Alternate Tax (MAT) and simplification of procedures are two important steps that are required immediately. Effective and efficient use of available land will go a long way and would be a great idea if a cluster complementing the production activity is created with an aim to provide supply chain and logistical support in the unutilized land. The revival of SEZ concept is of prime importance for immediate growth in exports. 

The withdrawal of Service Tax exemption on services by way of “technical testing or analysis of newly developed drugs” may hamper the export activity in this area. Whereas exemption of service tax on “loading, unloading, storage, warehousing and transportation of cotton, whether ginned or baled” will make the cotton supply more cost effective for all value-added textile products. 

Another welcome trade facilitation measures are - 24x7 customs clearance facility to 13 more airports in respect of all export goods, 14 more sea ports in respect of specified import and export goods and Implementing ‘Indian Customs Single Window Project’. 

Implementation of ‘Indian Customs Single Window Project’ providing facilitation of clearance of documents at a single point would really help exporters and importers. This would be an effective step to reduce transaction costs. 

There are many areas on which there were expectations like “Technology Fund Upgradation Scheme” for Engineering Sector, continuation of Interest Subvention Scheme, factoring facilities without recourse, complete implementation of EDI System (end-to-end), doing away with physical documentation etc. etc., which are not particularly addressed. 

India has presented Trade Facilitation (TF) Programme at Ministerial Conference of the World Trade Organisation (WTO), held in Bali, Indonesia, in December 2013. TF is likely to reduce transaction time and costs, however there are no specific provisions made in this regard, in the current Budget. We urgently require system upgradation. Exports need to be freed from all procedural complexities and infrastructural bottlenecks. Fortunately, there is a clear roadmap presented for infrastructure development, which will provide export competitiveness. 

Development of SEZs at Kandla and JNPT, development of Outer Harbour Project in Tuticorin and announcement of comprehensive policy for Ship Building Industry are some noteworthy developments. Creating new airports in Tier-I and Tier-II Cities, investment of Rs. 37,880 crores in NHAI and State roads are also very welcome steps.

Needless to say, every Budget presented in last 10 years has proposed investments and plans. Preparing plans and proposals was always a strength of the Government. The problems exporters face were never of conceptual nature but of practical implementation. 

Let us hope all the proposals would get implemented seriously in the given time frame and would help us achieve export target of $500 billion atleast by 2017. 

(The author, Mr Sudhakar Kasture, is Director, EXIM Institute. He has been teaching the subject for the past 30 years)

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