GST to help reorient states towards export promotion: Parliamentary panel

The states considering exports as a drag on their exchequer due to VAT refunds need to be discouraged and implementation of the GST regime would help reorient them towards export promotion, a Parliamentary panel has suggested.

The Parliamentary Standing Committee on Commerce in its report said that the Department of Commerce must further deepen its engagement with the states and spread awareness about the merits of having an optimal export infrastructure and export promotion in general.

This is important in view of the fact that barring a few exceptions, states are generally not taking desired interest in export development, the report tabled in Parliament today said.

"They take export as a drain on their exchequer since they have to refund VAT on the products exported. This attitude of the state governments needs to be discouraged," it said.

The committee also "hopes that introduction of GST system throughout the country would also help the states to change its orientation towards export promotion in a positive manner," it said.

It said the department should prepare such strategy for all the states and UTs in the country. "...The states would participate in export promotion in view of the potential of employment generation in the sector," it added.

It recommended the department to make concerted effort to bring every state/UT on board on this issue.

Appreciating various products offered by banks to facilitate a robust export credit framework, it said the rate of interest on such credit may be brought down.

"The banks must ensure regular exporters meet and have tie-up with various credit information bureaus to obtain information on the overseas parties for the benefit of export business customers," it added.

The Committee is of the view that EXIM Bank has primarily confined its operations in coastal areas and big cities of the country.

"The bank should reach hinterland areas so that export infrastructure may be created giving a boost to exports from those areas," it said. The Committee is of the view that absence of a composite view on export infrastructure has been the major obstacle in creation of optimal infrastructure to give boost to manufacture and export in the country.

"There is a need to reduce the number of agencies responsible for development of infrastructure," it said.

The committee also recommended that regulatory framework of major ports may also be put to minimum and adequate autonomy may be allowed to them to play according to the existing market forces.

Suggestion steps about port and shipping sector, it said any practice of overcharging by the shipping lines must be immediately checked.

Declining for 16th straight month in March, exports contracted by 5.47% to $22.71 billion in the month as shipments of petroleum and engineering products shrunk sharply due to tepid global demand. 

The report said that there is an urgent need to augment the Indian tonnage and increase the quantity of cargo carried on Indian ships, which also calls for cargo support.

"The emerging sectors, where there is a potential for enhancing trade (exports and imports), need to be focused upon and ways to open up sea routes on these sectors need to be considered," it said adding there is also a need to increase fleet size and invest in newer vessels.

Indian ships on average are 14-18 years old compared to global average of 10-12 years. A robust Indian shipping industry is sine qua non for cost effective shipping of Indian exports, it added.

The committee "desires that the government revisit the tax structure for Indian shipping industry and create necessary environment for overall growth and development of Indian shipping," it said.

On airport sector, it said the bottlenecks like increasing dwell time, missing and non-traceable cargo, inadequate and overloaded infrastructure facility have badly affected the optimal growth of air cargo sector in India and all these need to be addressed effectively.

In an another report, parliamentary standing committee on commerce said that various initiatives to promote exports taken by the Department of Commerce have come in "piecemeal manner".

Many trade items were withdrawn support when Merchandise Export from India Scheme (MEIS) was launched in the Foreign Trade Policy (2015-20) and this withdrawal of incentives caused many export contracts to run into losses or get repudiated, it said.

The Committee strongly feels that market development efforts of the department could have been better directed with more financial assistance and flexibility in its scheme guidelines.

"It desires the department to identify critical areas and to opt for more focused approach to enhance market access in agro-food processing, engineering, textiles," it said.

It said with the global market facing severe recession, conventional approach may not work, in the best of the interest of export sector, in at least stopping the downward trend in commodity export from India.

"The committee, accordingly, recommends the Department to take necessary corrective measure in this direction and chalk out some out of box solution to cease this downfall trend in exports," it said. It also suggested to furnish a status note on the performance of Export Promotion Councils in the context of the export strategy plan.

It also said that had there not been a delay of 20 months in implementation of the interest subsidy scheme, the export performance of the country could have been better than the present dismal picture.

"The Committee strongly feels that the interest equalisation rate may be increased by additional 2% to make our exports competitive," it said. On free trade agreements, it said the procedural requirement to take the benefits of FTAs is quite complicated and cumbersome.

It recommended to undertake an exercise in consultation with partner countries/regions to simplify the procedure so that even a small exporter can undertake the transaction under these FTAs.

"The committee fears that Trans-Pacific Partnership (TPP) may cause trade diversion resulting in India losing market share in TPP markets," it said. 

It also recommended to revisit the FTA framework as only 5-25 percent of India's external trade is covered by these trade deals with low preferential margins. "It is high time that the Department target for comprehensive trade pacts covering goods, services and investment among other areas," it said.