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Budget 2019: Exporters expect 'China-proof' policy measures from Sitharaman

      07/02/2019

Till last year, the US dollar-rupee exchange rate had been a major decider on the fate of export firms' earnings. The picture has changed as a tariff war forced exporters to explore new markets. Now, as the competition in global markets have increased, Indian export bodies expect a budget that offers exporters protection from China.

Protectionism increased in recent days with the United States raising tariffs on a number of Indian exports including steel and aluminium. Indian exports are also facing fire from the World Trade Organisation (WTO) as India's Export Incentive Scheme has been questioned by nations like the US, China, and Vietnam, among others.

In the last two quarters, India's merchandise export shipments have declined majorly for ready-made garments, leather, rice, marine products, gems and jewellery, engineering goods (including automotive parts), meat and dairy products. The decline has also hit hard India’s service exports, so far considered a strength but seen waning with competition in the IT sector from Southeast Asian countries like Philippines, Malaysia and Vietnam.

The government’s plans to incentivise exports, through Merchandise Exports from India Scheme (MEIS) and Services Exports from India Scheme (SEIS) have come under the WTO scrutiny. Also, the US has disputed at the WTO the incentives provided by the government under its Advance Authorization Scheme, which allows duty-free import of inputs to manufacturers of exportable merchandise.

Coming under global pressure, India is likely to withdraw certain export benefits in the upcoming budget, a commerce ministry official said. "As part of the budget exercise, we have to not only relook but also redefine a number of our export incentive schemes," said a commerce ministry official.

According to trade data of the Directorate General of Commercial Intelligence Statistics of commerce ministry, India’s export of gems and jewellery, including re-exports, contracted by nearly 14 per cent in May. Exports of agricultural goods dropped 46 per cent during the month compared to last year.

Ready-made garments (including those made of cotton, man-made and other fibres) registered a 23 per cent drop year-on-year. However, India’s import of crude oil and gold has increased, posing risk to its outflow of foreign exchange or the capital account deficit.

"Our exports to China have increased by 10 per cent on a year-on-year basis. Last year, we found more markets in China for the exports of basic chemicals, pharma, textiles and processed food," said Ajay Sahai, director general of Federation of Indian Export Organisations (FIEO). This, however, has brought its own share of risks for the Indian exporters.

"Coming under tariff pressure from the US, China has depreciated the Renminbi several times last year. This has hurt Indian exports the most," said Sahai. He added that prompt action will be necessary to protect Indian exports.

Exports of agricultural products, particularly, vegetables have also increased from India with renewed demand from the Kingdom of Saudi Arabia. Saudi Arabia had earlier said that it seeks India's cooperation as a major food sourcing hub for the oil-rich kingdom. The United Arab Emirates also constitutes a large share of India's export of food products.

Meanwhile, as subsidies have come under question, exporters have now sought the government's aid to provide them cheaper loans. "Even Shaktikanta Das, the RBI governor, had said during the policy statement that transmission of the rate reduction by banks is only 40 per cent. This needs to change," said T.G. Bhasin, chairman, Engineering Export Promotion Council (EEPC) of India.

EEPC officials had recently met Commerce & Industries Minister Piyush Goyal during a review of export credit in Mumbai last week. Exporters are also demanding incentives based on research and development, and product-specific clusters under government's new foreign trade policy, likely to be in place from April 2020.

Solar panel manufacturers in India have sought Finance Minister Sitharaman's intervention, in imposing anti-dumping and countervailing duties on Chinese imports of solar panels and other equipments.

Ludhiana-based grain exporter, S.C. Ralhan, said that as incentives are about to be stopped, the government should consider tax holidays for exporters for the next five years. India's exports have remained more or less the same at around $300 billion (+/- $40 million). During 2018-19, the exports from India grew by 9 per cent to $331 billion. Global logistics shipper Maersk also reported an increase in shipments from India.

The global logistics shipper have said in a recent report that while India's shipment continues to grow in 2018-19, the largest rise has come from exports destined for China, which has grown 10 per cent, according to Jim Snabe, Maersk chairman in the report. With the trade winds blowing hot and cold it remains to be seen whether Sitharaman would be able to balance the rising trade deficit with the Asian dragon.