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Volume of global trade expected to shrink in 2009
24
Jan '09
A Sakthivel, President of Federation of Indian Export Organisations (FIEO) presented Interactive Session on Measures to Stimulate Economy and Exports with Commerce & Industry Minister and Deputy Chairman - Planning Commission.

1. The volume of global trade is expected to shrink in 2009 for the first time since 1982 due to the continuing global economic slowdown. US has entered into recession and growth is projected to be minus 0.3%, Europe will grow by minus 0.7 % and Japan will witness a growth of minus 0.2% in 2009. South Asian countries, pursuing exports led growth, are also feeling the heat now with contraction of demand in US and recently in China.

Indian exports show a mild decline of 1.2% in Dec 2008 compared with decline of 12.4% and 9.8% in Oct and Nov respectively. However, exports declined by 18 per cent in the textile sector, and 21 per cent in gems and jewellery, while handicrafts' overseas shipment fell by 64 per cent in December. Going by this trend coupled with no increase in world trade, for the first time in a decade, exports may have a negative growth in 2009. Manufacturing sector continues to be in red. As per recently released IIP data for November, 2008, the production of cotton textiles, man-made fibre textiles, leather and fur products, basic chemicals, metal products, transport equipment and other manufacturing industries contracted in November.

2. Order booked position of Indian companies are dis-heartening. We are loosing export orders to our competitors by narrow margins due to additional sops given by them whereas we are not provided a level playing field to compete with them.

China, Pakistan, Bangladesh have given additional benefit to their industry in the form of higher VAT Rebate for exporters, Support in the garb of R&D facility etc. The export VAT has been increased by China for the fourth time, in last four and a half months, from 9 to 13% and for some products even to17%. On account of Drawback only, China has 5-6% advantage over Indian products particularly in Garments and Textiles, Leather, Light Engineering products etc .One can very well say that China should not be cited as example but one cannot ignore that China is benchmark for pricing and unless you match China price ,you may loose a sizable share of your exports.

Despite reduction in CRR, Repo rate and Reverse Repo rate, PLR of the banks continue to be high. After 2% interest subvention, export credit ranges between 9 to 11.5%. The exporter availing term loan pays over 14% whereas his competitor pays between 4-6% in South East Asia and less than 2% in Europe and US. The interest differential of 4-6% is making us uncompetitive.

There is no scheme to rebate State and local taxes/levies which itself for few products in certain States works out to be 5-6% of FOB Value. Unless the same is brought under GST, Government should factor it in Drawback/DEPB and other instruments.

All refund due to exporters are marred by procedural inefficiencies at the implementation level. At times drawbacks are held up, Excise rebate are not cleared for months and there is enormous delay in getting refund of service tax. The cost of getting refund including manpower, paper work and related charges works out to be 2-3% of fob value.

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