It's time to phase out some of export promotion schemes: Economic Survey

Survey suggests rationalisation owing to GST subsuming duties

The government should streamline the various export promotion schemes currently running while aiming to phase out some of them, the Economic Survey has suggested.

“Many duties have been subsumed under GST and if tariffs are reduced to be realised or near realised levels, some export promotion schemes can be phased out,” the Survey said.

Recognised exporters of manufactured goods receive credit incentives, generally in the form of duty drawbacks, in various forms. The three major sector-specific ones are the Advance Authorisation Scheme, Export Promotion Capital Goods Scheme and the Deemed Exports Scheme, accounting for Rs 35,000 crore in government payouts.

Apart from this, traders also earn duty credits in the form of scrips under the Merchandise Exports from India Scheme apart from Services Exports from India Scheme and the Incremental Export Incentivisation Scheme.

However, exporters expressed grave dissatisfaction with such an idea.

Incidentally, the government had last week clarified that scrips received under the above three schemes will attract taxation of 12 per cent in the Goods and Services Tax (GST) regime.

Exporters are now allowed duty-free import of goods that are used for the manufacturing of export products. However, under the GST, they would have to pay the duty upfront and apply for refunds later.

The scrips could be used to pay for payment of central taxes such as Customs duty or excise duty and service tax on future procurement of goods and services. However, under GST, the scope of payment has reduced to only the basic customs duty, Ajay Sahai, Director General of Federation of Indian Exports Organisations said.

The survey has also suggested lowering duty drawback rates with any revenue saved subsequently being used for export marketing efforts.

Tariff rationalisation

The survey notes that rationalising tariffs is needed. It points out that realized tariffs or basic customs duty is currently very low at 2.8 per cent in 2015-16 and constitutes less than one fourth of the average applied tariffs due to various exemptions.

“If refunds and customs duty drawbacks are deducted from gross customs revenue then the net realized tariffs (BCD) would be still less. Though different rates of tariffs are levied for various reasons, there is scope for reducing average applied tariffs by selectively reducing tariffs across many lines, while retaining higher tariffs for sensitive and important items,” it says.

Consequently, WTO bound tariffs could also be reduced which can help India to take a more pro-active role in global and bilateral trade negotiations, the survey hopes.

Specific sectoral focus on low skill manufacturing

The survey has also noted the need for classifying exports as a national priority sector and ramping up states’ participation by linking devolution of funds.

On the other hand, the topic of reclaiming low skill manufacturing—an area in which the government feels India has a good chance of taking advantage of China’s higher wage costs—has again been broached.

On this note, the previous survey had pointed to the need to focus on the apparel and leather goods sectors where India has traditionally enjoyed strength. India’s garment exports have been facing stagnation since last year because of depressed conditions in major export markets such as the US and the European Union.

While Bangladesh, Vietnam and China have been blamed for aggressively edging out Indian exporters from traditional markets such as Europe, industry insiders have also blamed recurring structural issues, such as fluctuation in availability of cotton and other fibres as well as rising costs over the past two years.

It has also pointed out the need for giving a specific push to ‘FDI linked and Value Added Exports particularly high-tech exports as in China and some ASEAN countries’ apart from formulating a clear-cut Agri Trade Policy.