PremiumIndia’s current account deficit widened to 4.4% of GDP in the second quarter. However, official estimates say merchandise exports may grow 7-8% to at least $450 billion in FY23, after a record $420 billion in FY22.
New Delhi/ Bengaluru: Worried about muted demand impacting Indian exports, the government is considering providing marketing assistance to exporters in key markets in the upcoming Union Budget. The government is examining various options, including a key demand from the industry to set up an export development fund with a corpus of 0.5% of the value of the preceding year’s exports.
The proposal for providing some form of support to exporters is being examined, with exporters seeking a tax deduction of 200% on the expenditure made for overseas marketing to showcase Indian products.
India’s current account deficit widened to 4.4% of GDP in the second quarter. However, official estimates say merchandise exports may grow 7-8% to at least $450 billion in FY23, after a record $420 billion in FY22.
“We foresee external account as a big challenge going forward for the economy amid weakening global demand and uncertain geopolitical situation. Industry is seeking an enhanced marketing support to boost exports in the form of an export development fund. That is being examined, but we need to see if that will help amid lack of robust demand in key markets," said a person in the know.Merchandise exports stood at $31.99 billion in November 2022, up 0.59% compared to the same month in 2021, according to government data. Merchandise exports had contracted 16.7% in October 2022 to $29.8 billion compared to a year ago.
According to exporters, the Rupee being one of the best performing currencies in the world is affecting export competitiveness, which requires additional support from the government.
“When global demand is declining, it becomes all the more necessary to go for aggressive marketing. However, most of the Indian companies are cutting their marketing expenditure in view of contraction. This may impact the country because if we are not visible in the market, we will not get whatever little demand there is and may not be able to exploit it when the global situation improves," said Ajay Sahai, DG and CEO, Federation of Indian Export Organisations (FIEO).
He added that small and medium exporters are being provided marketing support by most developing and developed countries for providing marketing exposure. “In India, though such support is provided, the support given under Market Development Assistance (MDA) scheme of the Department of Commerce with total allocation of less than ₹200 crore, for promoting exports to $460-470 Billion is just a drop in the ocean. For aggressive marketing, there is a need to create an Export Development Fund with a corpus of minimum 0.5% of preceding year’s exports," said Sahai. This would work to a corpus of $2 billion.Similarly, the Confederation of Indian Industry (CII) has recommended creating a Market Research and Promotion Fund, pointing out that it is important to understand international consumer preferences in markets of interest.
Queries emailed to the department of commerce and the ministry of finance on Tuesday remained unanswered till press time.
The department of commerce in a statement last month acknowledged that certain sectors do face the challenges of slowing global demand more severely than others. According to experts, the exports offtake has slowed down as rising inflation in most economies is affecting purchasing power. Large stores are maintaining lean inventories as the credit cost of building inventories has gone up due to interest rates hikes.
“The manufacturing endeavour set by the government to achieve $1 trillion merchandise exports by FY30 necessitates actions on multiple fronts. We hope that the forthcoming Union Budget would announce a slew of growth propelling policy measures to further boost the country’s export potential. Setting up of an Export Development Fund with a corpus of 0.5% of preceding year’s exports could greatly help in this regard, said Sanjay Budhia. Chairman CII National Committee on Exports.
Further, tax deduction on the expenditure made for overseas marketing to showcase Indian products would go a long way in creating a level playing field vis-a-vis global manufacturers and “rekindle business sentiment to achieve India’s aspirational target of being a global leader in exports", he added. “Each Indian embassy should have a showroom and area for networking meetings," said Vijay Kalantri, President, All India Association of Industries.