Continuation of GSP Beneficial to Both India & US

It is critical to address issues related to trade financing, trade incentives and logistics, to help Indian exporters become globally competitive, said Sanjay Budhia, Chairman, CII National Committee on EXIM and Managing Director, Patton Group, at the Board of Trade meeting.

Citing examples of other major exporting countries, he mentioned that “compared to China and Korea, where the cost of credit is around 3.7- 4 percent, Indian exporters have to pay around 6 percent-7 percent tax on the credit”. He proposed that interest subvention should be extended across the board to all exporters and not only MSMEs and tax rate should be in the range of 4- 5 percent.

Further, the industry’s pain point regarding the high cost of steel, procured from domestic sources, which is making India’s engineering exports less competitive, was also strongly brought up.

He reiterated urgent need to strengthen the domestic shipping lines. There have been persistent complaints from the exporting community regarding the arbitrary fixation of freight rates by shipping liners from time to time. Shipping liners are in the habit of imposing various charges which has a disruptive effect on the pricing of goods by exporters. For instance, while there are 48 mandatory charges like Base Ocean Freight, there is also a spate of auxiliary shipping charges such as Container Clearing Charges, Bunker Adjustment Charges, Peak Season Surcharge, Congestion Surcharge, Emergency Revenue Charge etc. It is suggested that a National Shipping Regulator be formed so that the freight rates that are charged by shipping liners reflect genuine competitive conditions between the buyer and seller of shipping service and are arrived at based on certain laid down guidelines rather than being determined by a quasi-monopoly situation that seems to be the case at present.

It was again reemphasised that massive Investment of 5 Lakh Crores in SEZ should be Productively Utilised. Close to Rs. 4.75 Lakh Crores have been invested in SEZ. Yearly exports from SEZ are close to Rs 6 Lakh Crores and around 20 lakh people are employed in SEZs. SEZs have a huge potential for increasing exports and needs a stable policy. Due to mid-term policy changes, many units in SEZ are finding it difficult to do business and carry on operations. Lot of infrastructure developments and investments initially planned for SEZs have either been abandoned or in a state of suspension. The SEZ Act of 2005 provided for Income Tax exemption for 15 years for units located in SEZ. MAT has unexpectedly been imposed on units in SEZ. The 10 year period (2006-16) for Income Tax exemptions has also ended and units established in 2006-07 are paying full Income Tax which has made them unviable due to added financial burden and they will lose the stimulus of investing and enhancing exports. It is hence suggested that a one-time 100% Income Tax payment exemption for a period of 5 years be provided and MAT be withdrawn at the earliest for all units operating in SEZs to mitigate the financial burden and give impetus to exporters to make further investments to expand or strengthen their existing operations.

In connection with the news reports that the US Government is contemplating withdrawal of Generalized System of Preference (GSP) to Indian exporters. Some facts relating to GSP would corroborate that continuation of GSP is beneficial to both countries. Normally GSP boosts the competitiveness of the US manufacturers by way of lowering their costs. Nearly two-thirds of the US imports under the GSP scheme are raw materials, components, or machinery and equipment used by the US companies to manufacture goods in the United States for domestic consumption or for export purposes. GSP also helps the consumers in the US by doing away with duties on a variety of usually inexpensive consumer goods. These benefits are real and tangible. The importers in the US enjoyed nearly $730 million in savings on import duties under the GSP programme in 2016 alone. In 2017, GSP saved various US companies $894 million in saved taxes. Hence continuation of GSP is beneficial to both the countries.