While these numbers demonstrate the role of the critical sector in propelling the country’s export performance, industry stakeholders say they can do much better if they get some protection from the inflationary pressures and volatile global headwinds.
These challenges have resulted in significant issues for the firms. The engineering export sector wants the budget to take note of the unpredictable and challenging global business environment and introduce some specific measures accordingly.
Arun Kumar Garodia, the EEPC Chairman, says one key aspect this budget should focus on is capacity building of engineering firms, particularly the smaller firms that are facing several challenges, including stiff competition with China. “The government should look at the Remission of Duties and Taxes on Exported Products (RoDTEP) scheme as a reimbursement scheme rather than an incentive scheme. The government should reimburse whatever taxes have been deducted during the manufacturing of the exported product,” he says.
While schemes such as the Emergency Credit Line Guarantee Scheme (ECLGS) have benefited the industry, these measures technically are a liability to the MSMEs. In such a situation, more tax exemptions or lower taxation can put more money into the hands of the companies to service their liabilities and for technology upgradation, assert industry stakeholders.
Tax sops for PLI
The EEPC chairman suggests that MSMEs could be given direct tax exemption on investments done under the production-linked incentive (PLI) scheme. These firms should also be entitled for weighted tax deductions of up to 150% on costs incurred due to export promotion. “For interest subvention, the scheme should consider the difference in the dollar interest instead of the rupee interest. The current dollar rate of interest is 6%; while for MSMEs, the rupee rate of interest is 11-12%. An interest subvention rate of 5% is necessary to offset the higher interest rates,” Garodia says, adding that the government should also bring down the corporate tax rate from 30% to 15% for LLP and partnership firms registered as MSMEs.The government should continue the capex push and further increase spending on infrastructure, which is a real necessity for Atmanirbhar Bharat, particularly in the power transmission & distribution (T&D) sector, says Sharan Bansal, Director of Skipper Limited. “We also want the government to increase the budget allocation towards the RoDTEP scheme to enhance export competitiveness of manufacturers.”
Another product where the MSMEs want some relief is import of glass fibre roving from China, Bahrain and Egypt. India is a leading importer of this material that is used in the production of many fibre-reinforced plastics. The material has a variety of applications due to its high strength and resistance against chemicals.
Naivedya Agarwal, CEO & Co-Founder of Runaya Group, says the government should not levy any anti-dumping duty on import of glass-fibre roving. “Also, there should be a rare earth mission like the India Semiconductor Mission, PLI schemes for rare earth and magnet manufacturing industries.”
Geopolitical issues have crippled the supply chain crisis and the budget should provide some relief on this front, say stakeholders.
“While freight markets have limited direct exposure to Russia and Ukraine, global logistics will have to contend with an increasing number of risk factors, including restrictions on airspace, uncertainty about consumer demand and the bottlenecks related to China’s Covid response. A PLI scheme for the supply chain segment will be helpful in the current disruption,” says Agarwal.
Cost pressure
The Federation of Indian Mineral Industries (FIMI) also highlights several tax glitches that need to be ironed out to make the country’s aluminium value chain “uncompetitive”. The industry body claims the average production cost of Indian aluminium producers is among the highest in the world. The cost increased substantially due to rising prices of critical raw materials, the inverted duty structure on import of raw materials, an increase in various taxes, electricity duty and logistics costs.
FIMI wants government to reduce the basic custom duty on critical raw materials.
RK Sharma, FIMI’s Secretary General, says China encourages the import of raw materials at nil duty for aluminium production to promote domestic value addition and export of finished products. “The government should reduce the basic customs duty on several critical raw materials. The export duty of 15% on bauxite is detrimental to Indian non-metallurgical bauxite producers and exporters.”
Another issue Sharma flags up is that of low-quality copper scraps being imported in large quantities following the Chinese and Malaysian ban of scrap imports. “This will create environmental problems for the nation. Also, such low-quality scrap material usage is being used in critical housing wire and coil applications, which are prone to fire hazards due to the lower conductivity.”
FIMI wants the finance minister to increase the basic custom duty for copper scrap equivalent to copper primary products from 2.5% to 7.5%. There should also be stringent customs inspection at ports, it adds.
