‘Exempt export profits from income tax’

The export business is poised to cross the $220-230 billion mark this year and is targeting $480 to 500 billion by 2014-15. Ramu S Deora, the newly elected president of Federation of Indian Export Organisations, the apex body of Indian export promotion organisations, speaks to  DNA about exports outlook, trade deficit issues and India-China trade relations. Excerpts:

Could you give us a general outlook on the current export scenario?
The general sentiment in the export business is good. Certain amount of revival has been seen in the US markets. Export will be good and we would cross the $220-230 billion mark this year. Sectors such as pharmaceuticals, chemicals, engineering, carpet and petroleum are already doing well and sectors IT will also perform well shortly.

While exports are improving, isn’t the growing trade deficit a cause for concern?
Trade deficit for November 2010 alone is around $18.9 million, till November it stood at $81 billion. It may touch around $125 billion against $102 billion last year. This is surely a cause for concern.

What is the main reason according to you for this growing trade deficit?
One of the many reasons contributing to the growing trade deficit is the government’s international trade policies, which unintentionally has affected exporters, especially those in the SME sector. Certain change in the taxation rates has blocked a considerable amount of capital for export-oriented companies, in the form of deposits with the government. Our appeal is that the pending amount of these SMEs be refunded.

Reimbursement of certain duties is also an issue. If you import and resell the goods in trading, then you get the reimbursement immediately, but if you import raw materials, produce and then export, the same benefit is not extended. Though this was done to plug loopholes, it has led to increased direct trading, without any value addition from the domestic industry. We appeal that immediate reimbursements should be allowed for such value-added exports.

Also, schemes such as advance licenses and duty drawbacks are expiring in March 2011. With expectations of the new GST policy to be introduced from April 2011 or April 2012, there is a lot of ambiguity among traders who wish to enter into long-term contracts. It would help if the government provides a transition period of at least six months in the wake of any new policy.

What is the outcome of your interactions with the government? What steps have been taken to control this growing trade deficit?
During the Rajiv Gandhi government, we had assured him that we will take the exports higher than the target set then. As we managed to cross the target, we demanded 100% export profits to be exempted under income tax section of 80HHC. This exemption was made and it lasted until 1995-97, which really helped the export industry.

This should be again extended to the SME’s immediately. By 2014-15, the government wants the export industry to meet a target of $400 billion, we say we will give 25 to 30% compounded growth every year upto 2014, making it around $480 to 500 billion by 2014-15, higher than what they are asking for. With this target, this tax benefit should be extended to the entire industry.

Targeting $480 to 500 billion by 2014-15 is surely ambitious. What would the strategy be and what according to you would contribute most to this expected export figure?
Sectors such as textiles, pharmaceuticals, petroleum, engineering, leather are all expected to do well.

We plan huge campaigns and shows, both in India and abroad, to create more awareness and assure the people and motivate people for higher exports. In addition, special economic zones (SEZ) have also started their production. We have given 580 SEZs, 367 of these have already started production.

You just mentioned that contributions from SEZs would be significant to achieve the export target. But are you happy with the way SEZs have developed in the past few years?
Many people cornered the land and wanted to build hotels and other commercial developments. This in turn, led to a rise in land prices, making it unaffordable for the common man. A rule needs to be formed wherein licenses are given with more detailed specifications of what kind of production or operations should be achieved within a fixed span of time for a fixed size of land.

Tell us more about how is India placed in the world export market?
When India was in its infant stage of development, the Made in India label was changed to another label. This has now changed; people have started recognising India for its quality and capacity. The advantage that most of the foreign buyers have started recognising is India is an English speaking country, will settle your claim and is looking at long-term customers.

Which newer markets have we started tapping now?
Exports to Europe and the US, have reduced. While, China is the biggest competitor to India, it is also the biggest market in the world. I think we should concentrate more on the Association of South East Asian Nations (ASEAN) markets. In addition, Indian goods are very popular in Latin America, South America, African markets and the Middle East. Brazil, Mexico and Panama all these regions are target markets where India has already entered in a very big way.

How are the trade dynamics between India and China and what changes can be expected?
China is involved in large sized production. It is surprising during Raksha Bandhan this year, Rakhis were imported in large quantities from China. We export raw materials such as iron ore, yarn to China, which obviously is generating huge employment opportunities there. An interesting change has been witnessed in the pharmaceuticals sector. China has stopped exporting certain products in which India has been superior, similarly India has also discontinued certain pharmaceuticals products, in which the Chinese are superior. This is a good thing. We need to further encourage hassle free entrepreneurship in India, to balance this trade between India and China, in favour of both the countries.

In the coming three to four years, which would India’s main export markets be?
While, the US and Europe will definitely continue to remain important markets, ASEAN countries including China, South America, Latin America and African countries will be the main markets.