India posted a trade surplus for the first time in nearly two decades this week. According to trade data released by the Ministry of Commerce, India’s imports plunged sharply in June, leading to a trade surplus of $790 million, the first in over 18 years. While normally something to celebrate (after all, a surplus means that India is selling more than it’s buying), in the current context, this is actually a cause for concern. Analysts have pointed out that the decreased imports are because of severely depressed domestic demand for many mainstream industrial products, which in turn form an important component for Indian manufacturing and the subsequent export supply chain. Reduced demand for these materials indicates slowing manufacturing, and a wider slowing economy. However, there is a silver lining, as the state of India’s exports has improved from the steep falls the sector saw in April and May. Renewed trade with neighbors like Bangladesh and Afghanistan indicates a slow return to stability for certain export sectors. Meanwhile, mere weeks after announcing tax relief measures for exporters, the government has started to shift focus on compliance, making invoice matching compulsory for input tax credit refunds. A separate investigation has also identified over 7,500 exporters who are deemed “risky” by various agencies, including 1,300+ exporters (among them seven ‘star exporters’) who have been found untraceable after wrongly claiming GST refunds amounting to Rs. 1,875 crores. As the government amps up its investigation into this large-scale tax fraud, one can only wonder the effect it will have on working capital availability for the larger export ecosystem. With a slowing economy apparently on the books, Indian exports may be in for a period of uncertainty and slower-than-expected recovery.
Trade Update
19TH JULY
# 78
India posted a trade surplus of $790 million in June, its first in over 18 years, with imports plunging as the coronavirus pandemic depressed domestic demand for crude oil, gold and other industrial products, reflecting a slowing economy. Indian exports and imports have been falling since March, and worsening India-China relations, shrinking global demand and disruptions in supply chains are likely to pressure the trade outlook over the next few quarters, analysts said.
Exports have started improving by 10-12% in June, said Piyush Goyal on 6th July. According to Commerce and Industry Minister Piyush Goyal, India’s exports show improvement signs because the contraction in outbound shipments in June has come right down to about 10-12% compared with 60% in April. India’s exports declined to 36.47% in May to US$19.05 billion. Piyush Goyal said at a CII function, “Currently, we are about 10-12% in June. We’ve reached up to 80-90% of the extent of exports that we had in June 2019 within the present month. I’m awaiting the data for the third week of June.”
The resumption of trade with Bangladesh through the West Bengal border has raised hopes among India’s non-basmati rice traders of getting fresh orders from the neighboring country. Trucks carrying rice are currently going through the Petrapole-Benapole border, fulfilling orders which were placed prior to the COVID-19 outbreak. “Bangladesh largely buys non-basmati rice. We have come to know that Bangladesh will import rice from India this year,” said Vinod Kaul, Executive Director, All India Rice Exporters’ Association.
Many exporters are facing a working capital crunch as they have run into refund problems after a recent government circular said exporters would not be eligible for input tax credit refunds in cases where they are unable to match invoices from the vendors. This situation is a result of the government waiving off late fees for companies and suppliers to upload certain forms under the goods and service tax, tax experts said. That led to several cases where these forms were not uploaded, and exporters were unable to take input tax credit running into crores.
Over 1,300 exporters who have wrongfully claimed Goods and Services Tax (GST) refunds worth Rs. 1,875 crores have been found untraceable at their main place of business, said a government official. The government has also identified 7,516 entities as risky exporters going by the red flags raised by various statutory agencies, the official said. The detection of 1,377 exporters, seven of them accredited as star exporters, vanishing from their place of business comes at a time the tax authorities are turning their attention back to compliance enforcement after having given relief to businesses hit by the coronavirus crisis.
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