Year closes on a gloomy note

This year comes to a close on a rather gloomy note for the Indian economy. Export, import, private investment, domestic demand, direct tax revenue and indirect tax collection all show a declining trend. Many steps the government has taken are yet to show tangible result. So, great expectations ride on the Union Budget to be presented next month-end and the new Foreign Trade Policy, expected later.

 

During the year, the government streamlined the mechanism for refund of Goods and Services Tax (GST) on export goods. Applications for refund of unutilised input tax credit on account of export without GST payment can be now filed electronically. Thus, the refunds come through quickly, helping exporters improve their working capital. Even so, merchandise export fell by one per cent during April-November, the first eight months of this financial year, indicating erosion of our competitiveness. And, services export has not grown significantly.

 

During the same April-November period, import went down by a drastic 8.9 per cent, reflecting severe lack of demand and investment. The government has taken a number of steps to improve ease of doing business, protected producers with quantitative restrictions, increased the import duty rates on select items and imposed non-tariff barriers. However, these have not helped revive the economy.

 

The United States government withdrew tariff concessions for Indian-origin goods under the Generalized System of Preferences. The government downplayed the impact. At the World Trade Organization (WTO), a panel ruled that India should remove the subsidies being granted under many export promotion schemes. The Indian government has appealed but the WTO appellate body does not presently have enough members to hear it, thanks to the US blocking the appointment of new members.  So, the panel ruling is not binding for the present.

 

The government had announced that the Merchandise Exports from India Scheme (MEIS) would be discontinued by this year-end, to be replaced with a new scheme termed Refund of Duties and Taxes on Export Products. However, till now, no notifications have been issued to this effect and it appears MEIS will continue till March-end, when the new FTP will be announced. The scheme of Refund of State and Central Taxes and Levies for select textile products continues but the benefit of MEIS is being withdrawn for such products from the beginning of next year. In July, the Customs drastically simplified regulations for manufacture in a bonded warehouse.

 

The foreign exchange reserves of Reserve Bank of India rose to a record level of over $450 billion, indicating sterilisation of speculative inflows from foreign institutional investors in the equity markets. This helped somewhat in stemming the rupee’s appreciation but it is still overvalued. To that extent, the competitiveness of exporters and Indian producers and Customs revenue have been hit adversely.

 

India decided not to go ahead to join the Regional Comprehensive Economic Partnership, a proposed free trade agreement in the Asia-Pacific region between 16 countries.  It conveyed lack of confidence in our ability to cope with competition from these economies.

 

Given the context, prayers for ‘achhe din’ are more apposite than parties when we usher in the new year.

E-mail: tncrajagopalan@gmail.com