India exporters seek rollback of a ‘penalty’ proposed in budget

Indian exporters are seeking quashing of a proposal for the confiscation of goods in case of any wrongful tax refund claim from them, saying that the move may impact trade at a time when the government is seeking to revive the pandemic-battered economy.

Finance Minister Nirmala Sitharaman in the budget for the fiscal year starting April has proposed an amendment in the customs law to provide for confiscation of goods for wrongful claim of refund of duties paid. The Federation of Indian Export Organization, the nation’s largest organization of exporters, said the step would adversely impact their business and dent the country’s image as a reliable supplier.

As Prime Minister Narendra Modi attempts to lure foreign investments by claiming improvement in ease of doing business, the proposal may not augur well with investors looking for alternative supply chains. Also, the measure and protectionist import tariffs on a slew of goods may hurt exports, which constitute around 20% of India’s gross domestic product even as Asia’s third-largest economy hurtles toward the first full-year contraction since 1952.

“Huge powers have been given to people at field level who will be interpreting the term ‘wrongful claim’,” Ajay Sahai, director general of Fieo, said in a media briefing in New Delhi on Wednesday. “A cost has been imposed which is hugely disproportionate to the assumed crime—it can be a mere miscalculation,” as the duties are just about 1%-3% of value of the goods.

India’s exports for April-January 2021 contracted by 13.66% to $228 billion compared with $264.13 billion during the same period last year, according to preliminary data.

Further, the lack of clarity on a new incentive program to provide a refund of all taxes on export goods is adding to the challenges for exporters. They cannot finalize their contracts as, though the program has been effective since January, the details are yet to be announced, Sahai said.