Thaindian News

By Pupul Dutta
New Delhi, May 21 (IANS) Facing its worst crisis in over a decade, India’s ailing export sector wants the new government to gift it a three-year income tax holiday, with experts pushing for concrete steps to protect some 20 million direct jobs in the industry.

An appreciating rupee, falling global demand, the high cost of credit and protectionism by some economies like the US are the reasons why India’s external trade industry is seeking such sops, after missing the export target for the previous fiscal.

“Exporters are passing through a difficult phase in view of the global slowdown,” said A. Sakthivel, president of the Federation of Indian Export Organisations (FIEO), the umbrella group to lobby for the sector, promoted by the commerce ministry.

“Income tax exemption for three years will help us reduce prices and remain competitive. The government should take immediate steps to prevent the sector from sinking further. Appreciation of the rupee has meant more gloom for us,” Sakthivel told IANS.

India’s merchandise exports fell last October for the first time in a decade, and missed the target of $200 billion set for fiscal 2008-09. Exports grew by a mere 3.4 percent to $168.7 billion, from $163.1 billion in 2007-08.

This, the federation admitted, had resulted in the retrenchment of some 500,000 people, especially in sectors like gems and jewellery, handloom, and textiles, with the rising rupee further exacerbating the problems.

Experts, however, maintained that the immediate measures did not call for tax sops, but for ways to prevent job losses as this industry has traditionally been labour-intensive, employing virtually a whole town and smaller cities in some states.

“The export sector has got enough sops. The need of the hour is to cushion workers who have been hit by the slowdown,” said D.K. Joshi, chief economist at Crisil, a rating agency and economic think tank.

“Exporters have to go through the grind. If the government starts giving tax exemptions, what will happen to its revenues? On the other hand, it can extend the rural employment guarantee scheme to the export sector to bail out workers,” Joshi told IANS.

But the export federation has its wish-list ready for the government:

- Introduce goods and services tax for full rebate on state-level levies;

- Increase drawback rate under duty entitlement pass book scheme by five percent;

- Exempt payment of fringe benefit tax to tap new markets;

- Exempt payment of service tax;

- Extend across the board export credit at seven percent;

- Provide 200 percent deduction on investment in new plant and machinery; and

- Create an export development fund with a corpus of Rs.5,000 crore.

These wishes apart, the Apparel Export Promotion Council (AEPC) wants sops in five specific areas, notably fiscal incentives of $500 million, a product development fund with $50 million corpus and simplification of export-import norms.

“I hope the government will push forward a strategy like a stimulus package to enhance competitiveness, since Indian goods are over 20 percent costlier than those supplied by competitors,” said AEPC chairman Rakesh Vaid.

“The high cost is due to higher credit rates, wages for labour and transaction costs,” Vaid told IANS, adding the steps underlined will boost the garment industry that has to its credit exports worth over $10 billion.

“Now that the United Progressive Alliance (UPA) has returned to power because of its people-centric policies, we hope it bails us out, too, before thousands more jobs are lost.”

(Pupul Dutta can be contacted at pupul.d@ians.in)