Need more regional trade deals, tax exemption for SEZs: CII report

The report has suggested full income tax exemption for 10 years be provided to units in Special Economic Zones, lower cost of credit for exporters, and fast-paced growth in high-tech shipments

A month after the government stepped out of talks on the proposed Regional Comprehensive Economic Partnership, a report by the Confederation of Indian Industry (CII) has argued that India sign more regional trade deals to unlock export markets for diverse products and exploit established value chains.

Submitted to the commerce department, the report has pointed out that global trade is happening increasingly via the preferential route and India should commit to signing more trade deals in the new upcoming Foreign Trade Policy (FTP), which is set to go live on March 31, 2020. Interestingly, CII has supported the government's move to sign trade deals with the US and European Union.

The report has suggested full income tax exemption for 10 years be provided to units in Special Economic Zones (SEZs), lower cost of credit for exporters, and fast-paced growth in high-tech shipments. 

The report, however, has batted for a clear review of existing Free Trade Agreements (FTAs) but also panned industry's unwillingness to take advantage of FTA benefits. India is currently negotiating its trade deals with the Association of Southeast Asian Nations bloc, Japan and South Korea. "For the ongoing one with Korea, we should use the opportunity to get not only additional market access in terms of further tariff reductions but also the necessary side letters signed to ensure that tariff reductions so given don't get negated by non-tariff barriers," the report said. 

India's poor performance in exporting to FTA partners has been attributed to third country partners having secured even deeper agreements with them. CII also suggested a clear time-bound process, giving easier access to generics approved by American and European drug regulators, getting a level-playing field with Asean nations on marine products and improved access for cut and polished diamond exports.

Major suggestions

• Creation of a new National Shipping Regulatory Body to determine freight rates
• Establishment of Market Access Facilitation cell to help exporters penetrate new markets
• Strict standards to help exporters face technical barriers to trade in developed markets
• Need to diversify services exports beyond tradition Information technology and IT-enabled sectors

Diversification deadlock

CII has stressed the need to diversify the export basket, currently dominated by raw materials, agro-products and low-value items. In its first stint, the Narendra Modi government had focused on exporting higher value-added products such as mobile phones through the phased manufacturing programme. But the report noted that share of high-tech exports in India's exports baskets remained stagnant between 2000 and 2017, at only 4.8 per cent while it made up just 8 per cent of manufacturing exports. This is lower than key emerging economies of Asia. 

It emphasised that exports of aerospace, electrical machinery, telecommunication equipment, pharmaceuticals, and scientific instruments, among others from India need to grow fast. Globally, exports of these categories stood at $2.15 trillion in 2014. While China has emerged the largest exporter, India's high-tech exports fell in 2015. 

The report has made a strong case for the demand to provide higher interest subvention of 3-5 per cent to all exporters to boost liquidity. 

The subvention is currently received only by micro, small and medium scale businesses while merchant exports typically have to pay 6 to 7 percent minimum interest charges.

The commerce department had been unwilling to restart income tax exemptions for SEZs after the earlier 10-year period (2006-16) ended. Now, CII has suggested that units may become unviable due to added financial burden and thus demanded they be releived from paying Minimum Alternate Tax.