Let exporters be given remittances at real effective rate of rupee: EEPC India

Engineering exporters' body EEPC India today said the exchange value of remittances to exporters should reflect the real effective rate of the rupee, claiming that such a move could make export promotion schemes WTO-compliant and its shipments competitive.

''In particular, it needs to be seen whether the exporters can be paid (the exchange value) on the basis of RBI's real effective exchange rate (REER) or if that is not possible a thumb rule should be followed to ensure that the deviation of the nominal exchange rate should not be more than 15 per cent of the RBI's six country REER," EEPC India Chairman Ravi Sehgal said in a statement.

The rupee recovered from a near 18-month low by rising 12 paise to 68.30 against the dollar in opening trade today on fresh selling of the US currency by exporters and banks.

According to Sehgal, keeping the currency a bit muted for export promotion has not been appreciated enough.

"While some of the existing schemes may come under the WTO (World Trade Organisation) scanner, keeping a close watch on the domestic currency and allowing the benefit for exporters, cannot be treated as an export subsidy in WTO norms, as the impact is for the entire economy, in de facto terms," he said.

He observed that a stable and slightly undervalued currency works both as an export subsidy and import tariff in a WTO consistent manner.

Sehgal said as the pressure on WTO mounts from several competing and developed countries, the protection under SMC (Agreement on Subsidies and Countervailing Measures) would have to be realigned in a manner that Indian exports do not suffer.

"We should continue with the current Foreign Trade Policy provisions till 2020 as that is life of the current policy and based on that the long term contracts have been signed, particularly, in the engineering sector.

"Thereafter, we can move to a fresh set of WTO compatible measures, once out of Annex VII provisions," the EEPC India chief said.

Other suggestions by the body include differential rate of around 15 per cent of income tax on export income. It claimed that a similar law has been enacted by the US for intangible income for the American firms from overseas.

"Incentives should be enhanced to small scale industries (MSMEs) as these will not be a specific subsidy according to the SCM Agreement and hence will not be actionable under the WTO prohibitive regime. For this purpose, the incentives could be linked to tax breaks; enhanced depreciation rates," EEPC India said.

Besides, the council has suggested a separate refund mechanism for all indirect taxes, which are levied in the supply chain for export production.

Such a mechanism, it said, would also be WTO-compliant and include refund of electricity levy (which is very high in several states), taxes on fuel, stamp duty, entry tax, road tax, property tax, input credits blocked due to tax inversion etc.