By Priyanka Venkat
Indias exports grew by 30.55 percent in November, hinting at a possible recovery from the hard times that exporters faced following the introduction of GST. This hike comes after a fall in exports last month by 1.1 percent, which was mainly caused by the failure to make timely refunds of input tax credit and Integrated Goods and Services Tax to exporters.
Simplification of GST refund process bolsters exports
An exporter can claim a refund of the tax paid by him on inputs as well as of the integrated tax paid (IGST). However, this refund can only be claimed after the goods have been exported. If the repayments are not made on time, it leads to a blockage in funds, potentially causing an adverse impact on the working capital available to the exporter.
Exporters are yet to receive at least Rs. 50,000 crores in refunds, due over the past four months. Faulty infrastructure and lack of proper reimbursement related forms on the GST network caused this delay in payment. This made it hard for exporters to file their returns. To hasten the process, the government has now permitted the filing of returns by the exporters manually. The government holds that errors in filling the forms have also contributed towards the delay, making it difficult for the refunds to be sanctioned. However, the refunds now seem to be on track and are being made quickly to prevent blockages in working capital.
Additional incentives by the government
Moreover, the government also announced incentives costing about Rs. 8450 crores to boost employment and labour intensive exports.
The incentives include providing duty credit scrips. A duty credit scrip is essentially a certificate that holds a monetary value. The exporter is exempted from paying duties on inputs that go into manufacturing the exported product, to the extent of the amount printed on the scrip. This plays a prominent role in incentivising exports. These incentives would go far in benefitting merchandise exports such as agriculture, marine, carpets and electronic components, and services exports such as accounting, education and architecture (to name a few).
Rising petroleum prices aids exports
The rise in exports is also partially attributable to an increase in petroleum prices and a low base effect. India imports more than 80 percent of the crude petroleum it consumes, refines it using its extensive network of refineries and produces petroleum products. After meeting domestic demand, the rest is exported. An increase in input costs of crude petroleum would naturally raise the price of the refined petroleum products being exported. Despite the hike in the price of petroleum products, a recovery in global demand could have led to the rise in exports of the products. In addition to petroleum products and engineering goods, chemicals, gems and jewellery caused at least 80 percent of the increase in merchandise related exports.
A low base effect refers to a hike in exports seeming favourable, based on calculations made in the previous month. As a result, it is prudent to look at the overall growth in exports, rather than just in comparison with the month before. Outbound shipment in November stood at $26.19 billion, in contrast to $20.06 billion in the same month last year. However, this was because exports in November 2016 had fallen by 24.43 percent, marking its steepest fall last year.
Hike in imports could worsen current account deficit
Imports, on the other hand, rose by 19.6 percent to $40.02 billion in November, marking a three month high. A 40 percent increase in oil imports contributed toward the hike in overall imports. This could have an impact on the current account deficit.
A current account deficit occurs when the value of goods and services that a country imports, exceeds that of its exports. For the quarter ending in September, the current account deficit doubled to 1.2 percent of GDP. This represents a rise to $7.2 billion in September 2017, as compared to $3.5 billion in the quarter ending September last year.
Predicting a relieved future
There are concerns that the rise in crude oil prices globally could worsen the deficit. However, the government does not seem too worried. Mr. Bibek Debroy, chairman of the Prime Ministers Economic Advisory Council (PMEAC) said, Given all the forecast that I have seen and the level that oil prices are expected to reach, I don’t see any reason for concern either in terms of overall macroeconomy or in terms of managing the BoP.”
Nevertheless, the rise in exports could be a sign that the country is finally getting back on track under the GST regime, and with other macroeconomic factors playing in our favour, we might well be on our way to growth.
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