NEW DELHI: Narendra Modi’s push to boost Indian exports is being undermined by the problems plaguing his government’s new tax system, companies have warned, with tens of thousands of exporters struggling to meet their short-term funding needs. The Indian prime minister unveiled a new goods and services tax in July, which ministers hope will significantly boost economic output by turning the country into a single market for the first time. But it has been beset by technical problems and design flaws, threatening business confidence and contributing to a sudden drop in gross domestic product. In September, it emerged that businesses lodged claims for tax credits worth nearly $10bn for the first month of the GST — far greater than ministers had been expecting.
As they look to increase tax revenues, officials have delayed paying credits to exporters, who have to pay their tax and then claim the cash back under the new system. Under the old regime, exporters did not have to pay tax at all on the supplies they bought. “Small and medium exporters are finding it especially tough, as they are not able to take out bank loans to fund their working capital while they wait for tax credits to be paid,” Ajay Sahai, director-general of the Federation of Indian Export Organisations (FIEO), said. Mr Sahai estimates there are about 100,000 small and medium-sized exporters, up to 40 per cent of which are now facing difficulties. The problems threaten Mr Modi’s aim of boosting exports, which he has made a part of his economic policy under the “Make in India” slogan. Until recently that policy had been relatively successful, with exports rising 4.7 per cent in 2016-17 to $274.7bn — the steepest in five years. But that progress has stalled. In September the Reserve Bank of India announced India’s current account deficit had jumped to a four-year high of $14.3bn, as imports rose at double the pace of exports. Meanwhile economic growth has also slowed, falling from 7 per cent at the end of 2016 to just 5.7 per cent for the quarter ending on June 30. The dip has triggered a rare bout of infighting within the ruling Bharatiya Janata party, with Yashwant Sinha, the former finance minister, accusing the government of making a “mess” of the economy.
As they look to increase tax revenues, officials have delayed paying credits to exporters, who have to pay their tax and then claim the cash back under the new system. Under the old regime, exporters did not have to pay tax at all on the supplies they bought. “Small and medium exporters are finding it especially tough, as they are not able to take out bank loans to fund their working capital while they wait for tax credits to be paid,” Ajay Sahai, director-general of the Federation of Indian Export Organisations (FIEO), said. Mr Sahai estimates there are about 100,000 small and medium-sized exporters, up to 40 per cent of which are now facing difficulties. The problems threaten Mr Modi’s aim of boosting exports, which he has made a part of his economic policy under the “Make in India” slogan. Until recently that policy had been relatively successful, with exports rising 4.7 per cent in 2016-17 to $274.7bn — the steepest in five years. But that progress has stalled. In September the Reserve Bank of India announced India’s current account deficit had jumped to a four-year high of $14.3bn, as imports rose at double the pace of exports. Meanwhile economic growth has also slowed, falling from 7 per cent at the end of 2016 to just 5.7 per cent for the quarter ending on June 30. The dip has triggered a rare bout of infighting within the ruling Bharatiya Janata party, with Yashwant Sinha, the former finance minister, accusing the government of making a “mess” of the economy.
