Home: Exempt export earnings from income tax, says ASSOCHAM.

The sharp decline in merchandise exports is causing widespread job losses in the sector and could have affected more than one million people, a study by the Associated Chambers of Commerce and Industry of India (ASSOCHAM) said here today.

Citing the findings of the survey, ASSOCHAM, in a statement, underscored the need for immediate relief to exporters who are reeling under a severe global demand slowdown and tough competition from other emerging countries.
 
“As per preliminary reports, employment losses have been taking place across different sectors but the damage  since beginning of the current fiscal is more in the labour-oriented sectors like leather, apparel, gems and jewellery," it said.
 
It said that even the engineering sector has been reporting cuts in headcounts as the pressure is increasing on business units to reduce prices because of declining demand and squeezing margins.
 
Small and medium enterprises, which employ about 170 million people across the entire value chain, account for 40 per cent of the country's exports, it said.
 
ASSOCHAM said the situation was quite serious and required immediate intervention of the government in terms of some radical steps. During April-January period, overseas shipments declined by 4.86 per cent to $ 239.6 billion, it said.
 
"Let alone the target of $ 350-360 billion, the shipments are not even likely to touch $ 300 billion for the current financial year," the statement said.
 
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“We will even suggest exempting the export income from taxation like it was the case earlier. That would really spur economic activities around the external sector," ASSOCHAM Secretary General D.S. Rawat said.
 
The study said that, while giving tax exemptions on the export income may be difficult for the Finance Minister, given the difficult fiscal situation, the measure would eventually lead to a win-win situation both for the exporters and the government.
 
“As higher exports would reduce the trade deficit, the pressure on the current account deficit, the highest ever, would abate with several positives including currency stability,” it said.  The  study also said that the depreciation in the rate of rupee has not really helped the exporters since the cost of imported raw material for export products has also gone up.
 
"Take for instance the gems and jewellery and the petroleum products sectors – among the main export earners.  With currency depreciation there may be some benefit, but it would be more than offset by increase in the landed costs of the raw materials – raw gold and precious stones and the crude oil respectively," it said.
 
The study, ahead of the Foreign Trade Policy, said that even as the government had realised that a widening current account deficit is the biggest economic challenge before the country, the increase in the Budget provided for fiscal 2013-14 was paltry.

While interest subsidy for exporters has been increased by about Rs 200 crore, there is a mere hike of about Rs 38 crore for the export promotion scheme, it said.
 
With this kind of limited elbow room, the Commerce Ministry will find it difficult to adequately incentivise exports, the statement said.

“The answer lies in some radical steps like making exports earnings income tax free. This would be a game-changer,” the study said, adding that exports need to jump sharp or else the trade deficit and the resultant current account deficit would eat into the country’s foreign exchange reserves.
 
According to industry inputs, the country’s exports, especially gems and jewellery and petroleum products, are witnessing decreasing scope of value-addition as the imports are becoming expensive.
 
“The problem has to be tackled at a twin level. Exports have to be pushed and imports have to be made cheaper, which depends largely on the global factors. Besides currency depreciation across several economies is intensifying the cost competition,’” it said.
 
The report said a big disadvantage that Indian exports suffered from was in terms of increasing cost of transactions and not much of ease of doing business.


“We expect the foreign trade policy to address the issue,” the statement added.


Source : netindian.in