Budget 2020: Commerce department seeks funds to boost export finance

As the Centre is reducing various export subsides, the Commerce Department is pitching for larger funds to develop exports and provide more trade finance, as part of the upcoming Budget. The subsidies form main component of the department’s budgetary allocations.  

Under the enhanced Trade Infrastructure for Exports Scheme, the ministry has been promised an allocation of around Rs 50 crore, same as it got last year, sources said. The allocations have been falling over the past two Budgets.

More funds are also expected for the Export Credit Guarantee Corporation (ECGC), for which the government has a lot of plans in store. The government is banking on greater loan coverage, easier inspection norms, and streamlining of profiles of exporters, to raise annual credit disbursal by 30 per cent in the current fiscal year (2019-20 or FY20).

One of the demands of the industry is to increse export credit insurance. Commerce and Industry Minister Piyush Goyal has said premiums paid by small businesses would fall. Under the proposed Niryat Rin Vikas Yojana (Nirvik) scheme, the interest rates will likely fall to 3.15 per cent for export credit in dollar terms and 7.35 per cent in rupee terms, according to the proposal moved to the Cabinet.

 

 

For this, the officials said the finance ministry has been asked for more funds to shore up the ECGC’s coffers. The corporation has been getting Rs 500 crore from past three Budgets.

The government wants to bring down the cost of credit to lower provisioning requirement and quicker settlement of claims. Export credit disbursal by public sector banks fell by 45 per cent in FY19 to Rs 15,600 crore, according to the Reserve Bank of India (RBI) data. In the previous year, it was Rs 28,300 crore.

Export incentive focus

The department may also unveil the actual size and structure of the proposed Remission of Duties or Taxes on Export Products (RoDTEP) scheme in the Budget, the sources said.

RoDTEP is set to replace the Merchandise Exports from India Scheme (MEIS) — India’s largest export promotion scheme — after the World Trade Organization said it distorted trade by providing direct subsidies. The organisation, in November 2019, ruled against India in its trade dispute with the US and asked it to stop all export promotion schemes within four months.

Initial deadline to end the scheme was December 31, 2019, but the government extended it till March 31 this year.  The government was swamped by sustained complaints from some sectors, including the electronics. It argued that the sector needed government support to ride out a global slowdown.

Introduced in 2015, under the Foreign Trade Policy, the mega MEIS was created by the merger of five reward schemes. It incentivises merchandise exports of more than 8,000 items. Exporters earn duty credits at fixed rates of 2 per cent, 3 per cent, and 5 per cent, depending upon the product and country.

Government officials maintain that RoDTEP, would also be based on MEIS and is estimated to cost Rs 50,000 crore in tax rebates. But lack of clarity on what the rate structure would look like has made exporters jittery.

While March 31 is also the date by which the updated Foreign Trade Policy (FTP) 2020-2025 is set to go live, the department sources said they expect the finance minister to announce atleast some steps to address the issue of trade deficit.