'Exempt export income from income tax to reach $500 bn target'

India's ambitious target of reaching USD 500 billion in exports by 2013-14 fiscal "looks next to impossible", said industry body ASSOCHAM, and suggested total exemption of export income from the income tax at least for a period of three years or till the time merchandise exports cross USD 500 billion.

Given the gravity of the situation on weak demand in global markets such as the US and Europe, The Associated Chambers of Commerce and Industry of India (ASSOCHAM) said, "achieving the ambitious target of USD 500 billion by FY 2014-15 'looks next to impossible' under the given global scenario."

"The Commerce Ministry, which is giving final touches to the annual supplement of the Foreign Trade Policy (FTP) should press for exemption to the export income….", it said in press statement.

The exemption to export income should also be given to the services exports. "With this action which will surely be a bold step, the economic activity will revive across the sectors," said ASSOCHAM.

Even the World Trade Organisation has projected a sluggish world trade growth of only 3.3 percent in the year 2013 as the economic slowdown in Europe continues to suppress demand for imports in the economically troubled continent. The world trade had fallen to just about two percent in 2012 from 5.2 percent in 2011, it said.

The apex chamber further said that situation on the export front, as highlighted by the Reserve Bank of India, calls for extra-ordinary steps as the current level of current account deficit (CAD) of 6.7 percent of the Gross Domestic Product is not sustainable. Even if CAD finally works out to five percent of the GDP for the entire financial year of 2012-13, it cannot be sustained, especially when exports remain subdued and fund inflows into the stock market have become uncertain.

"At least in the third quarter of the FY 13, the FIIs came handy for financing the CAD. The situation has now changed with the FIIs turning out to be net sellers. While the export deceleration seems to have bottomed out, nothing is certain as yet as almost entire European market is not turning around giving a big setback to mainline export items like engineering goods," said ASSOCHAM.

While there was a pick up seen in February, India's merchandise exports have declined by four percent for the cumulative April-February period of 2012-13 at USD 266 billion while imports were USD 448 billion leaving a huge gap of USD 182 billion.

ASSOCHAM said, "It should become a national endeavour to ensure that exports grow by leaps and bounds. That is possible only when selling in the exports markets become much more attractive. In the present global trade scenario the only way the exports business becomes more attractive than the domestic market would be through tax exemption."

It said while it would be drain on the exchequer, the overall results would be gainful the economy as higher exports would spur the economic activity by increased consumption and demand. The government can net in more revenue if there is overall economic growth, it said.

"As higher exports would reduce the trade deficit, the pressure on the current account deficit, the highest ever, would abate with several positives including currency stability," said ASSOCHAM.

It also said that the depreciation in the rate of rupee has not really helped the exporters since the cost of imported raw material for export products has also gone up.

The ASSOCHAM quoting concerns of the RBI said that deterioration in export performance was broad-based in H1 of 2012-13 as compared with H2 of 2011-12 as concerns regarding global slowdown had escalated during the decline in exports was largely due to loss of  momentum in  petroleum products and engineering goods. Exports particularly to Germany, Italy, UK and Belgium have been affected.

As a spin off exports to most emerging and developing markets have also decelerated, it added.