Sovereign debt concerns in the Euro Zone pose a major challenge to overall export growth. Tightening of belt in the Euro Zone is in the offing, which will have its effect on the World Trade. With the cooling of commodity and metal prices and lowering of demand, many of the African and Latin American Countries, witnessing an export boom, will face major challenges in meeting the burgeoning trade deficit and this may affect Indias exports to the Region.
Rupee is also strengthening now and thus the exchange advantage available in the recent past may no longer be there. However, there will be high volatility in the exchange rate, thus decision making for exporters will be a herculean task.
Finally, the slowdown in manufacturing will also have its impact on exports as the share of Capital Intensive Products in our exports have more than doubled to reach a share of 54% in 2010 while share of labour intensive products declined by half from 30% to 15%. There has been a direct relationship between GDP growth and Exports in the sense that better GDP growth propelled better exports. Since GDP growth is likely to moderate, the same will have its repercussion on exports.
The new challenges emerging on the scene require flexible and concerted strategy by the Government and the entrepreneurs. The key issues to be addressed urgently are:-
1. The cumulative impact of policy hikes has resulted in an increase in interest costs.
2. Extending interest subvention beyond 31st March 2012 for exports across sectors given the slowdown in exports (confined presently to Handicrafts Handlooms, Carpet and manufacturers in Small and Medium Enterprises).
3. GST is an urgent requirement of export Industry to effectively compete in the international market.
4. Union Budget 2012-13 to exclude expressly transactions in the course of exports, royalties, offshore and professional services from TDS
5. Investment plough back in export business to be given tax deduction
6. Extension of Facilities under Foreign Trade Policy till 31.3.2014
7. Service Tax on ECGC Premium, currency conversion, commission made to foreign agent, transports of export goods from place of removal to ICD or from ICD to Ports etc should be covered in the negative list of services thus exempting them from purview of service tax.
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