TAX POLICY
A long road ahead…
After months of agonising debates and discussions, India finally stepped into the GST-era, amidst much pomp and grandeur! While India is not the first country to introduce such a tax structure, the tax reform is the biggest since independence. It wasn’t surprising though to see that from the get-go GST was at the receiving end of its own share of bouquets and brickbats.
The new unified, four-tier tax system, according to its makers, is expected to help increase the competitiveness of Indian products and services in the global market. While there has been some cheer regarding the replacement of numerous taxes and exclusion of products from sectors such as agriculture from GST, many sectors which have products in the 18% and 28% slab have expressed concerns on its impact and its complicated compliance requirements. For the foreign trade community, while Indian exports are zero-rated, the inclusion of imports under IGST and the issue of restricting the use of duty scrips to certain duties have been sore points. Scrips from various export incentives and duty remission schemes can now be applied for only at a later date and can be used only for paying customs duty. While the Commerce Ministry has promised a quick 7-day processing of these requests, it’s safe to say that the trade community is not so certain. Exporters also fear that MEIS and SEIS rates may undergo a downward revision, but it seems they will have to wait till September for more clarity, as that is when the mid-term review of the FTP is expected to be released.
Talks on GST in India have crossed borders too and now neighbouring countries such as Nepal are also feeling the impact. Indian ports like Kolkata are import ports for many goods coming into Nepal. Under GST, as imports will be taxed, Nepali traders are concerned about the increase in prices for goods brought into the land-locked nation through India.
Two-wheeler Exports
A smart leap?
Conceptualised in Italy, ‘Made in India’, driven in Sri Lanka seems to be the latest mantra for Piaggio, makers of popular two-wheeler brands such as the classic Vespa and modern-day Aprilia. Piaggio which has a manufacturing unit in India has begun exporting its India-made two-wheelers to Sri Lanka.
Through this move, the Italian two-wheeler maker is hoping to expand its reach within the region by using India and its existing manufacturing facility as a springboard. The Indian manufacturing unit, which is located in Baramati, Maharashtra, was inaugurated in 2012.
However, it’s worth noting that exports of vehicles to Sri Lanka from various destinations had seen a decline over the last year due to an increase in import duty. The move was made to promote manufacturing in the country.
Despite the hike in import duties, Sri Lanka remains an attractive market for Indian two-wheeler manufacturers. India’s leading two-wheeler makers Honda Motorcycle and Scooters India and Bajaj Auto consider the island nation to be one of their key export markets. Yamaha India has also announced that they have started exporting their mid-range Yamaha FZ 25 to Sri Lanka this financial year.
Now, if Piaggio manages to strike gold in exports to Sri Lanka, will this move open doors for more exports of mid to higher-end two wheelers from India? Well, if Piaggio’s success in India is anything to go by it is more than likely that they will succeed in Sri Lanka unless they fall prey to protectionist policies.
RICE EXPORTS
Hitting a bump
EU regulations on health and safety have been a constant concern for Indian exporters over the years. The latest Indian export to be hit by stringent rules is basmati rice. The regulation is with regards to the maximum residue limit (MRL) of the chemical fungicide tricyclazole. The limit has now been reduced from 1 parts per million (ppm) to 0.01 ppm. This new directive will be in effect from January 2018.
This has raised flags with exporters who say that a drastic reduction of tricyclazole concentration in basmati rice would be difficult to implement immediately and could impact India’s exports to EU. Concerns have also been raised at the possibility that, in the wake of these regulations, India would end up losing its export market to neighbouring countries like Pakistan.
According to APEDA, India is one of the world’s largest exporters of basmati rice. Apart from Europe, other important markets are Saudi Arabia, Iran, United Arab Emirates, Iraq and Kuwait.
In FY2017, India exported a total of 4 million metric tonnes of basmati rice. The industry insiders state that the regulation would take at least two crop cycles to implement and as such the industry could lose a lot of business to neighbouring countries like Pakistan. India exports the PB1 and 1401 varieties to Europe, which usually have the permissible 0.03% tricyclazole content.
India is not the only country to be impacted by this. Countries like Spain and Italy are facing a similar predicament.
Indian exporters are now in a fix and have appealed Prime Minister Modi to intervene and are keeping their fingers crossed that the government will act as an effective mediator.
Import Policy
The cheer is back
Does Prime Minister Modi’s ambitious ‘Make in India’ plan gel with his other grand economic reform, the GST? Well, it seems so! Domestic handset manufacturers had been reaping the benefits of a differential tax structure that made smartphone imports 11.5% costlier than India-made handsets. So when a 12% GST rate was decided on mobile phones, it raised significant concerns amongst India’s handset manufacturers who had a sit down with the concerned authorities earlier in the year. For, such a policy change would have benefitted importers by leveling the playing field for both importers and local manufacturers. Come today, and the concerns of manufacturers seem addressed – the government has levied a basic customs duty of 10% on imports of mobile phones and some accessories like charger, headset, etc., w.e.f. July 1, 2017. The move has brought back the cheer to the domestic handset manufacturing industry. Now the question is: will foreign brands ‘Make in India’ and play by Modi’s rules or will Indian consumers be willing to pay higher prices for their preferred brands? Your guess is as good as ours.
Bilateral Trade
Brothers in arms
In what was the first visit by an Indian Head of State to Israel, Indian Prime Minister Narendra Modi embraced his Israeli counterpart Benjamin Netanyahu and expressed joy on meeting his “brother”. 
As a part of Modi’s visit, the two nations signed seven memorandum of understandings (MoUs) pertaining to exchange of information and development of infrastructure. This includes the setting up of a $40-million India-Israel Industrial R&D and Technological Innovation Fund, a strategic partnership in water and agriculture, as well as scientific cooperation in areas such as satellites, atomic clocks, etc. The two nations also emphasised on the need to begin negotiations for an “Protection of Investment” agreement to strengthen the bilateral ties. Israel has also eased visa norms for Indians and will be issuing five-year multiple entry visas to Indian businessmen to further boost trade and promote people-to-people exchange
While India and Israel have had political differences in the past, this visit is expected to give the economic relationship between both nations a fillip. It’s worth noting that Indo-Israel trade has seen a steady growth over the years despite some fluctuation in trade numbers. Bilateral trade, which began in 1992, has increased from $0.2 billion in FY1992 to $5.02 billion in FY2017.
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