ManagementTwo major tax reforms to give edge to Indian businesses
The New Year brought the happy news that exports showed positive growth of 18 per cent in November 2009. The coming decade promises to bring more exciting news.
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Two major tax reforms due by next year promise to reduce transaction costs for exporters significantly. A simpler income-tax regime will put more money in the hands of businesses, which can invest these as they consider best. The Goods and Services Tax (GST) regime will reduce complications and lower the compliance costs. Together, they will help Indian businesses get more competitive.
Input costs are likely to go down further as the import duty rates come down, as India tries to integrate its economy with East Asian countries and its neighbours. Under the South Asian Free Trade Agreement (Safta), the entire neighbourhood can get integrated into a seamless market in about five years. The integration with the Association of South East Asian Nations (Asean) will mean that market access to these countries will progressively become easier and in about seven years, movement of goods in the region will become duty-free. Comprehensive Economic Cooperation Agreements are already in place with Singapore and South Korea.
The commerce ministry is aggressively pursuing free trade agreements with China, Japan, South Africa, Egypt, Brazil and groups of countries in Latin America and Persian Gulf. An agreement with the European Union is on the cards. Agreements with countries like Indonesia and Vietnam within the Asean block and select countries in the Pacific and Indian Ocean are also likely to aid the process of seamless flow of goods across the borders. The multilateral trade negotiations are also likely to proceed faster, now that the worst of the global financial crisis is behind us.
The exporter should now focus on taking best advantage of the opportunities to exploit the markets that are opening up, rather than trying to get more subsidies. With progressive lowering of tariffs, many export promotion schemes might lose their relevance. The exporters must prepare for a possibility that by 2014, the Foreign Trade Policy will cease to have much impact on their competitiveness.
In terms of Policy, further reduction of import duty rates, the implementation of the Direct Taxes Code and adoption of GST might render even the schemes like export-oriented Units, special economic zones and software technology parks quite unnecessary. The commerce ministry should try to abolish unnecessary schemes and let exporters focus on their businesses.
What exporters must appreciate is that even as tariff barriers come down, more non-tariff barriers are likely to come up. They must find ways to overcome these through better quality standards acceptable to the buyers and consumers in the importing countries, more environment-friendly methods to produce goods and better service to the buyers. Merely protesting against non-tariff barriers would not be enough.
In 2008, the then commerce minister Kamal Nath spelt out an ambitious target of achieving 5 per cent of the world trade share by the year 2020, which meant increasing exports eight-fold. The sobering influence of the global financial crisis and consequent deceleration in world trade made the present Commerce Minister, Anand Sharma, set a more realistic target of doubling India’s world trade share by the year 2020. The target can easily be achieved, if exporters focus on markets.