People in the export trade might have seen news appearing in the print media in the past few months now and then that current export incentives regime is on the way out. Actually this should be a shocking to many in the trade. In many cases margins in the export business have become so wafer thin that government incentive is the only buffer in their pricing. Apart from china (most certainly we cannot compete) we also face stiff competition from the new emerging economies like Bangladesh, Vietnam, Malaysia and Philippines etc.
Each country has its own export incentive regime, no doubt. According to WTO, as long as incentive regime compensates tax incidence at the input stage of the export product, such a regime is acceptable and is termed as WTO compliant. Even Europe Union, Canada, US and Australia have their own agricultural subsidies but they are compliant with the WTO standards. In fact, few years ago, the most popular export incentive, DEPB was withdrawn following strong protests from US and European Union. Of course, it is another matter that the scheme was neatly dovetailed in to duty drawback scheme.
At present both finance and commerce ministries have their incentives for export sector that are WTO complaint and that are not. The following diagram shows the schemes and their level of compliance:
Minsitry of Commerce through DGFT
- ADVANCE LICENCE- WTO COMPLIANT
Merchandise Export from India Scheme, (MEIS)Service Export from India Scheme(SEIS) Export Promoiton Capital Scheme(EPCG)
- ALL THE ABOVE ARE NON COMPLIANT
One may tend to ask when DEPB was removed the reason cited was that the scheme provided unfair advantage to the Indian exporters over other countries’ exporters. So, what is the reason adduced for the removal of present popular schemes like EPCG, MEIS and SEIS?
Our growth! Yes, our per capita income crossed $1000 consecutively for the last 3 years. It is a yardstick by which export incentive regime is assessed by the WTO. So, any country that advances economically should dispense with the incentives provided to the exports. Apparently, there is some logic. In any case, when that is the world order, it has to be accepted and adhered.
Going by the news reports, the thinking in the government circles is that instead of benefiting exporters only for their export performance, EPCG scheme is to be tweaked so as to benefit the domestic industries also based on their performance in employment generation. Another argument, which the Government puts forward for justifying the scheme, is that in India manufacturing costs are high. (I would say, why manufacturing costs, even existence costs are high)
An apparent example is the cost of electricity. The present policy is to ‘Rob Peter and Pay Paul’. Agriculture enjoys free power, households enjoy subsidized power as against Industry and trade that pay more for the same service.
In any case, very soon the new policy is likely to be out. Let us await the details.
R R Padmanabhan
Foreign Trade Sub Committee
Andhra Chamber of Commerce