Exporters shouldn't rely much on subsidies from govt

The finance minister has drawn a lot of praise for presenting a growth-oriented Budget that envisages greater role for the private sector and substantial investment in building infrastructure. 

The statement of intent and strategies to push through reforms and increase the growth rate have boosted sentiments around the economy. The remarkable rally in the equity markets shows this. 

The government expects the Customs revenue at Rs 1.36 trillion in 2021-22 against a revised estimate  (RE) of Rs 1.12 trillion in 2020-21 and actual revenue of Rs 1.09 trillion in 2019-20.  This represents a growth of about 21.6 per cent next year over the revenue in the current year and 24.83 per cent over the revenue in the previous year. The revenue secretary said the tax revenue projections were based on estimates of about 14.5 per cent nominal growth and tax buoyancy of about 1.6 per cent. This means that only about 5 per cent growth in Customs revenue is expected by way of increase in duty rates and exchange rate variation. That does not signal a strong return to protectionism. 

The government has introduced the Agriculture Infrastructure and Development Cess that will be levied on select imported goods and petroleum products. Many tax rates have been tweaked with the intent to encourage domestic production. Some anti-dumping and countervailing duties have been suspended for a temporary period. Most exemption notifications are to be reviewed by October this year after extensive consultations with trade groups. Thus, the concept of a uniform tariff rate for items in a Chapter is being abandoned and an element of uncertainty is introduced.

On Tuesday, in this newspaper, Sukumar Mukhopadhyay, former Member of the Central Board of Excise and Customs pointed out many complications in the tariff rate structure and how uncertainties in duty rates made it difficult for businesses to plan their operations. The 2020-21 RE for basic customs duties (BCD) at Rs 88,884  crore shows a decline of Rs 1,714 crore from the previous year. However, the Social Welfare Surcharge (SWS) levied at 10 per cent of BCD shows a growth of Rs 5,249 crore in the revised estimates for 2020-21 over the previous year. For next year too, the proportionate increase projected is more for SWS than the BCD. The Budget documents do not give the current year RE or next year projections for anti-dumping or safeguard duties and some other items of revenue through import of goods.

Under the Duty Drawback Scheme, the allocations for 2021-22 go down to Rs 377 crore from the RE of Rs 497 crore in 2020-21 and actuals  of Rs 640 crore in 2019-20. This may translate to a cut in drawback rates. The allocation for 2021-22 under the Remission of Duties and Taxes on Export Product (RoDTEP) scheme is only around Rs 13,000 crore. This means the RoDTEP outlay will be nowhere near the Rs 50,000 crore that the finance minister mentioned when she announced the scheme in August 2019. 

Also, the RoDTEP rates can be around one-fourth of the rates under the Merchandise Exports from India Scheme (MEIS). Similar cuts are seen under other schemes and so, the exporters must learn to not rely much on subsidies from the government. The Finance Bill proposes many amendments to the tax laws based on the experience gained during the year. As usual, some facilitate the trade whereas many are revenue-oriented.

Email: tncrajagopalan@gmail.com