The implementation and refund delays under Goods and Services Tax (GST) caused working capital constraints for firms, which in turn might have hurt their exports in October 2017, said a study by RBI staff. But various initiatives by the government since then appear to have significantly alleviated exporters’ concerns which got reflected in the exports growth pick up in November and December 2017, it said.
A 10% increase in the Working Capital/Sales ratio led to a 1.8% decrease in the exports growth according to the RBI staff study. Sectors with high working capital to sales ratio took the biggest hit in exports growth between March and October. For example-Petroleum and Gems and Jewellery have the highest working capital/sales requirement and they were hit the most during October. Meat, Dairy and Poultry on the other hand have low working capital requirement and saw one of the smallest decrease in exports growth.
GST implementation was marred by infrastructure snags and implementation delays, which led to changing the date of filing tax returns for July multiple times. As per the implementation of the tax regime, exporters were supposed to get 90% of the input tax (GST on supply of services or goods to a taxable person) refund within seven days of filing their returns. However, there had been significant delays in receiving the input tax credit which could have adversely affected the working capital of firms.
The impact of the implementation issues is more evident and severe for the exporters, the study said. Prior to GST, exporters were upfront exempted from paying any duties. But under GST, they are required to first pay the tax and later claim refunds. This constrained their working capital, at least once after the regime switch, since exporters would have had to adjust to the new tax regime. Under GST, they can avail 90% of the input tax refund within 7 days, but only after the goods are exported out of India.
Post dismal performance of exports in October, November 2017, exports jumped by 30.55%. This is one of the highest growth rates observed in the exports in the last two years. The study attributed this to fast-tracking of GST refunds and exports sops and lower base of export growth in November 2016.