Following are the points put forward at the Board of Trade Meeting by M Rafeeque Ahmed, President, FIEO
1) AVAILABILITY OF DOLLAR DENOMINATED CREDIT: The cost of credit has gone up substantially in India and even after factoring 2% Interest Subvention, the cost of Rupee credit is over 10% for MSME exporters. Most of the banks are not providing subvention upfront. The dollar denominated credit is available at LIBOR+ 100 basis points and can be extended at around 3% to exporters.
However, most of the Indian banks are not having adequate funds with them. RBI should help the banks to get necessary dollars for providing dollar denominated credit. Unfortunately, even after deregulating the PCFC, the availability to MSME is still a big concern as most of the banks consider corporate as a safe bet.
2) AVAILABILITY OF RUPEE CREDIT TO EXPORTERS: Export credit as a percentage of net bank credit has come down to 3.7% (Nov 2012) as against the desired rate of 12%. Export credit was removed from priority sector lending for Indian banks. Now it has been removed from the specified category of priority sector for foreign banks also. Banks are now extending credit to other sectors and thus completing the desired 12% priority sector lending. RBI may instruct banks to allocate at least 5% of net bank credit to export sector, so that credit is available to the exporters.
3) SPECIAL CUSHION OF 2% TO OVERCOME DOWNTURN IN EXPORTS: In the current global economic scenario, where demand is reducing, only the fittest could survive. Indian exporters have still to bear 4-5 percent of transaction cost. The global competition is forcing exporters to reduce the cost of the products. It is suggested to provide a cushion of 2% on exports so that exporters can take it into their pricing and be competitive in international market. This may be for a limited period of 2 years.
4) FTA/CEPA/CECA COUNTRIES UNDER FMS: The recent data shows sharper increase in imports as compared to our exports to countries with whom we have signed preferential/ free trade agreements or comprehensive agreements. With a view to address problem of increasing exports, all such countries should be put under Focus Market Scheme so that greater emphasis is put on such countries and exporters aggressively compete in such markets taking full advantage of FMS benefits.
5) CREATION OF AN EXPORT DEVELOPMENT FUND: The biggest challenge affecting MSME exports is on the marketing front as most of MSME lack financial resources to meet the cost. Government needs to chip in with liberal funding. The total marketing support extended by DoC under MAI and MDA is insufficient to meet the demand of MSME for export marketing.We should create an Export Development Fund so as to support them on this front. The corpus of the fund should be 0.5% to 1% of export value so that sizable money is available to promote MSME exports.
6) SUPPORT TO E-COMMERCE: E-Commerce has emerged as an important tool for micro & small exporters. Such portals provide a marketing support to MSME and the linked payment gateway ensures payment without any risk to exporters. The private e-com websites like E-bay, etc. charge around 13-15% as their transaction fee. We should encourage MSME exporters to develop their own professional website for promoting their products and get it linked with service provider for payments. The cost of development of the website and the one-time cost for payment linkage may be reimbursed to MSME exporters. The present e-commerce exports are about US$ 1 billion but could grow by over 100% on year on year basis.
7) PERMISSION FOR FDI IN E-COMMERCE RETAILING: While allowing 51% FDI in multi-brand retailing, albeit with some conditions, the Government has prohibited FDI in e-commerce retailing. E-commerce will provide immense opportunities to the small businesses/ entrepreneurs/ MSME units to utilize e-commerce platform and sell goods online to larger section of the society, which otherwise they would be unable to do so because of geographical issues. It will attract investment in the back end infrastructure like warehousing, logistics/transportation services, IT services, shipping services etc. A strong backend infrastructure is vital for any ecommerce platform. International e-commerce companies who have expertise in this field may guide Indian e-commerce companies to learn the best practices. It will increase the competition which will eventually be beneficial for the consumer. It is suggested to allow FDI in e-commerce retailing.
8) WAIVER OF ADDITIONAL EXPORT OBLIGATION UNDER EPCG FOR MSME EXPORTERS: Technology is an important factor as they are not expanding or upgrading technology. The sum total of the duty on imports comes to around 25% but they have the option to import at Zero or concessional duty under EPCG Scheme. However, the average export obligation acts as a deterrent to most of MSME. Therefore, the average export obligation under EPCG Scheme should be waived for MSME exporters which will help in replacing the old technology and adopting new and upgraded technology for better production.
9) DOUBLE WEIGHTAGE FOR MSMES ALONG WITH OTHER WEIGHTAGES: Earlier, MSMEs were given double weightage for grant of recognition as Status Holder in addition to other weightages. However, with a policy change effected about two years back, they are now only entitled for one of the weightage, which is bring them at par with big industrial houses. MSME should be encouraged by giving double weightage in addition to other weightages available for grant of recognition as Status Holder.
10) ONE POINT FOR CLAIMING EXPORT BENEFIT: Presently there are many agencies, whom an exporter has to approach to claim export benefits like Department of Revenue for Duty Drawback, DGFT for FTP Schemes, interest subvention from banks, etc. It is suggested to nominate a nodal agency who will give all the export benefits. It will reduce the transaction cost and time.
11) SERVICE TAX EXEMPTION FOR EPCS/FIEO: The left over period of Service Tax between 1.4.2008 to 5.7.2009 is subject matter of tax dispute. Since Councils/FIEO have not charged the member Service Tax on membership fee due to lack of clarification, Finance Ministry may kindly grant exemption from Service Tax for the aforesaid period so that legal dispute can be avoided. The revenue implication of such measure would not be much.
12) LOCKING OF EXPORTERS’ MONEY IN DUTY DRAWBACK DURING FEB-MARCH: We have observed that there has been usually undue delays in grant of Duty Drawback during February and March of every year as Customs Officers are short of their customs duty collection and averse to releasing Duty Drawback which further dent their collections. The Duty Drawback is not paid through any separate budget allocation but the same is paid from import duty collected at the port.
The problem could be resolved if the target for Customs is fixed for gross duty collection so thatamount of duty Drawback which affect net duty collection does not affect the flow of drawback at any time in a year. Such arrangement is only for statistical purposes as the pending amount of Drawback in any case becomes payable in the next financial year. A small change in accounting procedure would help the trade and will ensure regular money flow to exporters who are hard pressed for liquidity particularly as cycle of exports is taking longer time.
13) GAP BETWEEN ANNOUNCEMENT AND IMPLEMENTATION OF THE POLICY: Most of advance countries release the draft policy document which is put into public domain, calling for comments from the public within a reasonable time. Such practice while on the one hand build confidence amongst the user simultaneously provides important feedback to Government to fine tune the policy based on the feedback received from the user. Off late, few departments in the Government are also pursuing the same practice. We may also follow the same practice for Foreign Trade Policy or for any major changes in the policies or the schemes so that trade is not off-guarded .
14) INCENTIVES TO BE FULLY UTILIZED: The objective of various incentives/supports given by the Government should be its optimum utilization by the exporting community. Wherever, any incentive is not fully utilized, Government should evaluate the reason for the same and address it quickly to ensure full utilization of the benefits.
Therefore, all the Schemes where full utilization is not happening due to limited requirement at the exporters’ end, may be allowed full transferability which include Status Holder Incentive Scrip, Served from India Scheme etc. Moreover, the validity of the scrip should be long enough for full utilization. At times, the limited validity of a scrip results in partial utilization of the same at the cost of the exporter. In an era when import duties are coming down, every exporter would like to utilize the scrip as early as possible. Therefore, sufficient validity may be provided to scrip. (Source: Tecoya Trend)