Exporters in India are not happy with the current policy and exchange rate situation even though they should be cheering the depreciating rupee. A combination of higher input costs, uncertainty over tariffs, and the fact that the government has said it would not be refunding them the Integrated Goods and Services Tax (IGST) they have paid, has meant that exports contracted in September for the first time in six months.
Exports contracted by 2.34% in September, albeit on a high base, despite the rupee averaging more than 72 a dollar during that month. Over August and September, when the rupee averaged 70.8 per dollar, India’s average export growth stood at 8.5%. Compare this to the 16.8% export growth rate in the same period of the previous year, when the rupee averaged a much stronger 64.2 to the dollar.
A depreciating rupee should ideally be good for exporters, since it means that India’s exports are relatively cheaper than they were before. However, export bodies such as the Federation of Indian Export Organisations (FIEO) have said that this benefit is not passing through to exporters.
Costlier capital goods
According to FIEO, the depreciation has resulted in an increase in the cost of imported capital goods, inputs and various services used by exporters paid in foreign currency. Apart from this, the exporters say that depreciating currencies in some of their biggest export destinations such as West Asia, Africa, and certain parts of Asia, has meant that buyers in these areas have also begun asking for discounts. While these factors are not completely in the government’s control, exporters complain that there are other issues where decisive government policies could go a long way in improving confidence in the sector and easing their financial troubles.
Lost orders
Several exporters have complained that the confusion surrounding India’s eligibility for the U.S. Generalised System of Preferences has meant that many advance orders, which ordinarily would have gone to Indian companies, are now being diverted to exporters in Sri Lanka, Bangladesh, and Vietnam.
Further compounding this issue is that there is a complete lack of clarity among exporters on whether India’s exports currently can get the GSP benefits or not. The GSP is a system where the U.S. allows certain eligible countries to export about 3,500 commodities to the U.S. on a duty-free basis. Earlier this year, the U.S. said it would be reviewing India’s eligibility for this benefit. In the meantime, while the Indian government has maintained that India’s exporters are still eligible for the GSP benefits until the review is completed, major export bodies have said their exporters have not received these benefits since December 2017.
Others, however, say that they are receiving the benefits. It is up to the Indian government to clarify this situation with the U.S. government. The Commerce Ministry has also been somewhat casual about this issue, the exporters say, with officials shrugging the issue off by saying that Indian businessmen have been canny enough to invest in countries that are still eligible for GSP benefits, and so they have been able to indirectly avail of those benefits through that route.
The government has also maintained a stubborn stance on IGST refunds., say exporters. The Centre argues that since the exporters have been receiving duty drawback on input taxes paid, they are not eligible for IGST refunds. Exporters say this view lack skews the playing field in favour of exporters operating in a single State. An exporter with operations in one State is eligible for Central GST and State GST refunds, but an exporter with operations across States gets no IGST refund.
Many of them say the bulk of their working capital — in many cases more than 50% — is tied up in IGST refunds running into crores of rupees. Several exporters, The Hindu has spoken to, say that they have had to resort to taking loans to keep their businesses running.
