After a surprisingly lackluster Budget as far as the MSME and export sectors are concerned, stakeholders from these sectors face increasing worry about what the future holds for them. With Finance Minister Nirmala Sitharaman’s Union Budget largely focused on domestic sectors, exporters, in particular, are likely going to face some sleepless nights in the coming months. Factors like a stronger Indian rupee backed by external borrowings, rising trade tensions with the US, and increasing trade deficit with the likes of China and Indonesia are all matters of concern for the Indian export sector. Thankfully, there is a small silver lining -- the Central government has decided to take on the responsibility of paying ITC refunds to exporters for State GST as well. One hopes that this will resolve long-standing issues with delays in GST refund, but whether this will be enough to pull Indian exporters from their post-Budget blues remains to be seen.
Trade Update
13th July
# 33
India’s exports might become an unwarranted casualty of the government’s plans to raise a part of its gross borrowings from external markets, according to analysts. Presenting the Union Budget 2019-20 on 5th July, Finance Minister Nirmala Sitharaman proposed to raise a part of the government’s gross borrowings from abroad. The move, designed to free up additional liquidity in the domestic market, is expected to strengthen the Indian rupee, consequently hurting the country’s exports.
US President Donald Trump repeated his complaints on 9th July that India’s tariffs on US products were unacceptable but he did not indicate whether he would take any further action in the trade row between the two nations. “India has long had a field day putting Tariffs on American products. No longer acceptable!” Trump tweeted. There was no immediate comment from India’s foreign and trade ministries. But an Indian government source with close knowledge of the matter said Trump and Indian Prime Minister Narendra Modi had a “very good meeting” in Osaka in June and they were continuing to engage on the issue.
The bilateral trade between India and China has declined by 3.59% year-on-year, totalling $36.87 billion in the first five months of this year, denting optimism that the total trade volume may cross the $100 billion mark in 2019. India-China bilateral trade last year touched a historic high of $95.54 billion, raising hopes that trade this year could cross the historic $100 billion mark. The trade deficit in 2018, according to Chinese official data, climbed to $57.86 billion from $51.72 billion in 2017.
Commerce and Industry Minister Piyush Goyal, on 9th July, raised concerns about India’s trade deficit with Indonesia which stood at $10.57 billion during 2018-19. During a bilateral meeting with Indonesian Minister of Trade Enggartiasto Lukita, Goyal said the balance of trade is heavily in favor of Indonesia and both countries need to work towards establishing sustainable trade by diversifying the export basket. There is considerable potential for expanding trade in agricultural, automobiles, engineering products, IT, pharmaceuticals, biotechnology and healthcare sectors.
In major relief to exporters, the Centre will now pay the input tax credit (ITC) refunds of state taxes, thereby reducing transaction time and costs, and manual interface in claim processing. As per industry, there is a huge difference in the amount claimed, state goods and services tax (SGST) sanction amount received from the central tax authority, and the amount actually disbursed. “The central government has been authorised to pay the amount of refund towards state taxes to the taxpayers,” according to the 2019-20 budget.
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- Telangana giving shape to its exports strategy