Uncertainly surrounds GST's impact on exports – like discontinuance of duty-free imports, delays in tax refunds that will cause trouble to India's exporters in the MSME sector, restrictions on usability of scrips, etc.

Steven Philip Warner | May 2017 Issue | The Dollar Business

Ever seen bikers on Indian roads, imagining their ride to be a battle wagon from Mad Max and threatening to kiss your vehicle bumpers like daring ‘bishops on a chessboard’? Appears, they’re sitting on a moving time bomb. The news their dependents don’t want to hear; it could be any day. Indian exports is riding on a similar time bomb. There is excitement in the air as May begins. News of India’s exports having grown at its fastest pace in five years has made the summer air cooler. Developments across industries in the past quarter are signaling to a year that will see India touch the $500 billion mark. Natural rubber exports from India reaching the highest in the past four years; remarkable jump in engineering goods, steel and petroleum products categories; lifting of the ban on bulk exports of major edible oils; India becoming a net exporter of power for the first time; horticulture and Services exports from India out-pacing global growth last year; and many such developments. But the biggest expectation from the year is from the showdown called GST.

A positive change in exports value during a tough year is praiseworthy. Everyone’s pleased. But you don’t need a foreign trade expert with a freakish understanding of how to deal with a spaghetti bowl of factors to tell you that incentives and subsidies were to a great deal responsible for pushing Indian exports to credible highs in the year gone past.

There is little logic in ignoring warning signs that have started emanating from the WTO camp. Two issues. First, as per the WTO’s Agreement on Subsidies and Countervailing Measures, when the share of a developing country (India) in global exports touches 3.25% in any product category for two consecutive years, it has to phase out all export subsidies within eight years. Second, India no longer qualifies for differential treatment, as its GNI per capita has breached the $1,000 mark three years in a row starting 2012. As per TDB Intelligence Unit, there are 27 chapters accounting for about 43% of India’s exports value (in CY2016) that no longer qualify for any subsidy. Objections have already started pouring in from Western powers to force the WTO to make India comply. US for instance has objected that India should stop incentivising its garment and textile exports as it has achieved “export competitiveness”. That the WTO reflects and reinforces US economic interests is no hidden fact (remember how US struck back with a reverse complaint at WTO about India’s solar programme being anti free-trade and won?). Means, India has limited time to give the maximum to its exporters before WTO puts a lid on subsidies that are supporting India’s exports. Therefore, why shouldn't it?

GST and a modified FTP are two platforms that policymakers can use to express positive intent. Uncertainly surrounds GST's impact on exports – like discontinuance of duty-free imports, delays in refunds, restrictions on usability of scrips, etc. Similarly, while WTO compliance is important, FTP should be recast in a manner that gives maximum relief to exporters, be it for the short term. With rupee appreciation here to stay, can we ignore the tough weeks to follow for Indian exporters? Simply creating an Export Development Fund with a corpus of about Rs.5,000 crore will do little when currently, Indian exporters need an annual support system that’s almost 12 to 15 times that amount. If we are to avoid making Make in India, UnMake in India, when the WTO bomb explodes, we will have to give up the idea of “domestic self-sufficiency” being Option B.

So what’ll ‘Option B’ be? That answer will decide whether our exports continue to grow in the years to come, just like it did in recent months.