When Union Finance Minister Pranab Mukherjee rises to present the Union Budget 2010 on February 26, all eyes would be on how he would proceed to deal with the various sops and incentives extended under various stimulus packages to the export-dependent sectors, particularly the labour-intensive export oriented units, during the last almost one year.
Especially concerned would be the exporter community, closely watching the situation unfold to find out whether the Finance Minister continues with the various exemptions and sops given through the three different stimulus packages or withdraws them in view of the exports walking into the positive territory for the last three consecutive months.
With the stimulus packages along with the new Foreign Trade Policy (FTP) having played a big role in turning around the situation for a distraught exporters' community, there is thinking within the Finance and Commerce Ministries that all those export sectors which have shown robust growth should face withdrawal of sops. The Commerce Ministry is strongly in favour of continuing sops for sectors that still continue to be weak including textiles, jute, carpets engineering goods, leather and handicrafts.
Exporters fear that any abrupt withdrawal would only result in adverse impact on the export front and could derail the recovery that has been possible due to the pro-active approach of the Commerce and Industry Ministry. "The same level of the Central Value Added Tax (CENVAT) excise duty should be continued for some more time, otherwise it may unsettle the industry and impact business calculations in such a way as to disrupt the pace of industrial growth,'' the Commerce Ministry has written to the Finance Ministry.
The government reduced excise duty by 6 per cent across-the-board and service tax by 2 per cent in different phases, beginning December 2008, to boost domestic demand which was impacted due to the global financial meltdown began in October 2008. The country's exports has come under severe pressure since October 2008 and kept contracting till October 2009, touching a low of 39 per cent in May last year.
During April-December of this fiscal, merchandise exports declined by 20.3 per cent to $117.58 billion from $147.56 billion in the same period last fiscal.
However, since November 2009 the exports sector returned to growth for the first time in 11 months, and in December even imports began to grow. Now exports are clearly on the path of positive growth for the third consecutive month, recording an 11.5 per cent growth in January at $14.3 billion. In January 2009, these stood at $12.9 billion.
The Federation of Indian Export Organisations is seeking a turnover tax in lieu of income-tax with a view to reducing administrative burden and resultant costs. The turnover tax will dispense with all other direct taxes and exemptions, including depreciation. The other demands include continuation of the 2 per cent interest subsidy extended to exporters and extension of the export-oriented unit schemes beyond the 2010-11 fiscal. The Ministry has also sought income tax exemptions to all export promotion councils.
The Indian IT industry, which continued to show resilience and achieve sustainable growth since 2008-09, is eagerly looking to the government to continue with its stimulus measures to help bring the industry back on to its earlier growth trajectory. One of the key areas that the Industry is expecting the Finance Minister to address on the direct tax front, not surprisingly continues to be 'extension' of the tax holiday for Software Technology Park (STP) / Export Oriented Units (EOU) / Electronic Hardware Technology Park (EHTP) units.
The Garments Exporters Association wants the government to reduce the transaction cost and grant necessary fiscal and commercial relief for the garment sector of the textile Industry to enable it to face increasing international competition.
The Export Promotion Council for Handicrafts (EPCH) has sought exemption from income tax under Section 10BA should be reintroduced covering all handicrafts products and also exemption from Service Tax be also extended to merchant exporters. EPCH chairman Raj Kumar Malhotra also sought announcement of more mega clusters - Jodhpur (Rajasthan), Mysore-Channapatna (Karnataka), Puri (Orissa) and Ferozabad - for development and promotion of handicrafts from these areas.
Mr. Malhotra demanded imports of tools required in the manufacture of handicrafts at nil rate of custom duty, that pre and post shipment finance for 360 days be made available to exporters at 7 per cent, enlargement of the existing list of products, liberalisation of Marketing Development Assistance (MDA) for direct participation in the international business exhibition. He reiterated his demand to provide exemption from service tax both to exporters as well as export promotion councils and other export organizations.