Government announces ₹50,000 crore overhaul of export tax refund scheme
Finance minister Nirmala Sitharaman on Saturday announced a slew of measures including a new attractive scheme to refund the duties and taxes on exports that will replace all existing schemes in a bid to stimulate exports and the economy.
The new scheme which will benefit all products including textiles is more beneficial to the industry, the minister said at a briefing.
“This will incentivise all exporters more than all the existing schemes put together. The revenue forgone is projected at upto ₹50,000 crores,” said the minister. Sitharaman also announced a fully automated electronic refund system for giving Goods and Services Tax (GST) credits to businesses on the taxes paid on raw materials.
Sitharaman said that the existing schemes for refund of duties and taxes to exporters will continue till the end of this year. From 1 January, only the new system will be available.
Sitharaman’s announcement is part of the measures the government is taking to reverse a sharp economic slowdown that has become a political headache for the Narendra Modi administration. Sitharaman also announced a host of steps to give relief to exporters and boost trade.
India’s merchandise exports in August declined for the second time in the current financial year, which began in April, while imports dropped for the third consecutive month, signalling that rising protectionism and trade tensions between the US and China are impacting India’s trade prospects as well.
Data released by the commerce ministry showed India’s merchandise exports declined 6.05% in August while merchandise imports dropped 13.45% leading to the narrowing of trade deficit to $13.45 billion during the same month.
Kerala finance minister Thomas Isaac tweeted on earlier on Saturday: Exports contracts 6% in August. Yet trade deficit narrows as imports decline by 13%, reflecting partly stagnation in domestic production. So much for the ambitious target of $1 trillion for the next 5 years set by the commerce ministry.
Te measures are expected to complement the monetary stimulus being given by the Reserve Bank of India (RBI) which has lowered the benchmark interest rate four times since January, bringing the repo rate to 5.4% in August.
Sitharaman said seven non-bank lenders have already benefited from a partial credit guarantee scheme for banks to buy assets of such lenders.
The slowdown has forced the government to consult representatives from various industries including banks, non-bank lenders, foreign investors and manufacturers after the union budget for FY20 was presented in June. After these meetings, Sitharaman announced measures including front-loading of public expenditure, a massive ₹100 trillion investment into infrastructure, steps to improve access to credit for businesses, liberal foreign ownership norms and more capital for state-run banks.