New Delhi, September 21, 2017

Govt grapples with GST implementation, WTO norms on export incentive schemes

Exporters may have to wait an extra month, or even more, for the foreign trade policy (FTP) review, earlier scheduled for September, as the government is still grappling with implementation issues related to the Goods and Services Tax (GST).

The Centre has also not taken a call on the future of export incentive schemes that may no longer be permissible under the World Trade Organisation rules as India has graduated out of the list of poorer countries allowed to give export subsidies.

“It is unlikely that the FTP review will be announced before October-end. It may happen even later depending on the pace at which the concerns of exporters are sorted out,” a government official told BusinessLine.

The five-year FTP announced on April 1, 2015, which laid an ambitious annual target of touching $900 billion of exports by 2020, provided for a review when the policy was half-way through and not on an annual basis as was the earlier practice. “The idea was not to tinker too much with the policy and instead do an analysis when it was half-way through and do course corrections if required,” the official said.

Two-and-a-half-years after the FTP was announced, the Commerce Ministry finds its hands full with the number of concerns it might need to address while reviewing the policy.

“Addressing the issues arising from implementation of the GST is top priority as it is bothering exporters most. The Centre has to ensure that refund of input taxes happens on time and exemptions may be given where necessary to help exporters maintain their liquidity. This can take time as not only will the Finance Ministry will have to be on board, the GST Council ultimately will have to pass the revisions,” the official said, adding that the Council would next meet only sometime in October.
Sop scheme

Incentive scheme for exporters is another tricky area in the review as earlier this year the WTO declared that India’s per capita Gross National Product (GNP) exceeded $1000 for three years in a row (2013. 2012, 2015) making it ineligible for export incentives that only poorer countries are allowed.

“The Commerce Ministry has to first identify the schemes that could be affected because of India’s new status and then plan how to phase out those schemes and replace them with production subsidies that are allowed under the WTO. This is again an onerous exercise,” the official said.

While the Merchandise Export Incentive Scheme under which incentives based on value of exports is provided to over 7,000 items would no doubt be one of the affected schemes, the government has to examine the validity of other schemes such as interest subvention.

Ambitious target

The ambitious export target of $900 billion fixed for 2020 is also a problem since exports have moved sluggishly over the last two years hovering around $300 billion and there is no scope of reaching the target. “Not only does the target need to be brought down to a realistic level, some more schemes have to be devised to accelerate exports,” the official said.

[The Hindu Business Line]