India can make its export promotion schemes WTO- compliant and make the Country's exports competitive by allowing the exchange rate to reflect the real value of the rupee , that has only recently shown some parity, helping the exporting community, engineering exporters' body, EEPC India said recently.
Until about a few weeks ago, we had seen and felt the effect of undervalued rupee on our export margins. Keeping the currency a bit muted for export promotion has not been appreciated enough. While, some of the existing schemes may come under the WTO scanner, keeping a close watch on the domestic currency and allowing the benefit for exporters, cannot be treated as an an export subsidy in the WTO norms, as the impact is for the entire economy, in de facto terms. A stable and slightly undervalued currency works both as an export subsidy and an import tariff in a WTO consistent manner," said EEPC India Chairman Mr Ravi Sehgal , in a statement .
The EEPC India Chief said ''In particular, it needs to be seen whether the exporters can be paid (the exchange value) on the basis of RBI’s REER (Real Effective Exchange Rate ) or if that is not possible a thumb rule should followed to ensure that the deviation of the Nominal Exchange Rate should not be more 15% of the RBI’s six Country REER ."
He said as the pressure on WTO mounts from several competing and developed countries, the protection under the SMC (Agreement on Subsidies and Countervailing Measures) would have to be re-aligned in a manner that Indian exports do not suffer.
The EEPC India said "We should continue with the current Foreign Trade Policy provisions till 2020 as that is life of the current policy and it is based on that the long term contracts have been signed, particularly, in the engineering sector. Thereafter, we can move to a fresh set of WTO compatible measures, once out of Annex VII provisions".
Other suggestions of the council include differential rate of around 15 per cent of income tax on export income. A similar law has been enacted by the US for intangible income for the American firms from overseas.
Incentives should be enhanced to small scale industries (MSME) as these will not be a specific subsidy according to the SCM Agreement and hence will not be actionable under the WTO prohibitive regime.. For this purpose, the incentives could be linked to tax breaks; enhanced depreciation rates.
Besides, the council has suggested a separate refund mechanism for all indirect taxes , which are levied in the supply chain for export production. Such a mechanism would also be WTO -compliant and include refund of electricity levy (which is very high in several States), taxes on fuel, stamp duty, entry tax, road tax, property tax, input credits blocked due to tax inversion etc.