Rationalise tax structure, focus on export infra to push foreign trade

Projecting difficult times to continue in 2009 for the country's exporting community, the Economic Survey 2008-09 suggested the government to rationalise the tax structure, prepare a specific policy on Comprehensive Economic Cooperation Agreements (CECAs) and focus on export infrastructure to improve foreign trade.

Interestingly, the Survey has also suggested that the proliferation of special economic zones being cleared by the government be checked. The government has given formal approval to 568 SEZs notified 318 SEZs as on May 13, 2009.

India's merchandise exports grew a scanty 3.4% to $168.7 billion, lower than the downwardly revised target of $175 billion. Imports of goods rose 14.3% to $287.76 billion against $251.65 billion, increasing the deficit from $88.52 billion to $119 billion.

Quoting IMF's forecast of negative world trade volume of 11%, the Survey stated, "The outlook for Indian trade sector in 2009 is not very encouraging. With import demand falling from our major trading partners, India's exports of goods and services is expected to be impacted." In April-May 2009, exports fell 31.2% to $21.75 billion.

The recovery is expected in 2010, as the world output is likely to rise 1.9% and trade volume to grow 0.6%. However, India needs to better its tax structure including specific duties and evolve a "clear-cut policy for beneficial CECAs even with developed countries instead of free trade agreements and preferential trading agreements ," the Survey stated.

Among the tax and duty rationalisation measures, the Survey suggested continuation of the reduction in customs and excise duty to make exports competitive keeping in mind the levels in trading partner countries and weeding out unnecessary customs duty exemptions. As part of stimulus measures, the government had restored customs duty on pig iron, non-alloy steel items, zinc and ferro alloys to 5% in December 2008.

Also, there is a need to "guard against protectionist measures originating from our trading partners", the Survey recommended. It added "negotiating for streamlining the domestic regulations in our major trading partners could help in increasing our market access" to improve services exports. The US-one of the major trading partner for India-recently announced plans to change tax rules that may withdraw benefits to companies outsourcing work to India.

As per RBI data, software exports registered 28.2% growth at $32.3 billion during April-December 2008 vis- -vis $25.2 billion in the corresponding period a year ago. During the third quarter (October-December) of 2008-09, when many sectors were reeling under the effect of global financial crisis, the software exports increased to $10.2 billion as against $8.8 billion during the same quarter of 2007-08, indicated 16.1% growth over the year.