Reports of job losses in export sectors
New Delhi, Mar 11 : A sharp decline in merchandise exports is forcing widespread job losses in the sector estimated to be over one million people, an ASSOCHAM study said underscoring the immediate relief to exporters who are reeling under a severe global demand slowdown and tough competition from other emerging nations.
"As per preliminary reports, employment losses have been taking place across different sectors but the damage since beginning of the current fiscal is more in the labour-oriented sectors like leather, apparel, gems and jewellery," said the study.
"Even the engineering sector has been reporting cut in headcounts as the pressure is increasing on the business units to reduce prices as the demand is declining and margins squeezing," the study said.
Exports which receive about 40 per cent contribution from the small and medium enterprises employ about 170 million people across the entire value-chain.
ASSOCHAM said the situation is quite serious and requires immediate intervention of the government in terms of some radical steps. During April-January period, overseas shipments declined by 4.86 per cent to USD 239.6 billion.
Let alone the target of USD 35-360 billion, the shipments are not even likely to touch USD 300 billion for the current financial year, the study said.
"We will even suggest exempting the export income from the taxation like it was the case earlier. That would really spur the economic activities around the external sector," chamber Secretary General D.S. Rawat said.
The study contended that while giving tax exemptions on the export income may be difficult for the Finance Minister, given the difficult fiscal situation, the measure would eventually lead to a win-win situation both for the exporters and the government.
"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," it said.
The chamber 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.
"Take for instance the gems and jewellery and the petroleum products sectors - among the main export earners. With currency depreciation there may be some benefit, but it would be more than offset by increase in the landed costs of the raw materials - raw gold and precious stones and the crude oil respectively," said the chamber.
The ASSOCHAM study, ahead of the Foreign Trade Policy, also noted that even as the government has realised that a widening current account deficit is the biggest economic challenge before the country, the increase in the Budget provided for in the Budget for fiscal 2013-14 is paltry.
While interest subsidy for exporters has been increased by about Rs 200 crore, there is a mere hike of about Rs 38 crore for the export promotion scheme, it said.
"With this kind of limited elbow room, the Commerce Ministry will find it difficult to adequately incentivise exports," it said.
"The answer lies in some radical steps like making exports earnings income tax free. This would be a game-changer," the ASSOCHAM study pointed out adding exports need to jump sharp or else the trade deficit and the resultant current account deficit would eat into the country's foreign exchange reserves.
According to industry inputs, the country's exports especially the gems and jewellery and petroleum products are witnessing decreasing scope of value-addition as the imports are becoming expensive.
"The problem has to be tackled at the twin level. Exports have been pushed and imports have to be made cheaper, which depends largely on the global factors. Besides currency depreciation across several economies is intensifying the cost competition,'" it said.
The report released by Rawat also highlighted a point about a big disadvantage the Indian exports suffer in terms of increasing cost of transactions and not much of ease of doing business.
"We expect the foreign trade policy to address the issue," the chamber said.