Even as export growth figures entered positive territory in November and December 2009, the commerce ministry thought fit to announce a series of new incentives for exporters. To what extent these will actually help boost exports is a moot point because the subsidies get passed on to foreign buyers but for the moment, Commerce Minister Anand Sharma seems to have wrested important concessions at a time when continuation of fiscal stimulus in the economy had come in for a review.
The commerce ministry added 112 new products under the Focus Product Scheme (FPS) at an eight-digit level benefitting by 2 per cent of FoB (free on board) value of exports, exporters of select engineering, electronics, rubber, chemicals and plastics products, besides carton boxes and egg powder.
Exporters of 113 new products at the 8-digit level get higher benefits at the rate of 5 per cent of FoB value of exports under Special FPS on exports to all markets mainly benefitting sectors like hand tools, parts of agriculture and horticulture machinery, sewing machines and parts, liquid pumps, nuts, bolts, washers, screws, staplers, and parts of machinery for soldering, brazing and welding.
Under the Market Linked Focus Products scheme (MLFPS), 1,837 products at the 8-digit level) were added, which included major sectors like machine tools, earth moving equipment, transmission towers, electrical and power equipment, steel tubes, pipes and galvanized sheets, compressors, iron and steel structures, auto components, three wheelers and cotton woven fabrics. Two new major markets — China and Japan — were added under MLFPS and chemicals exports to select markets were included in the scheme for a limited period of six months.
Sesame seeds and minor coconut products were added to the list of items eligible under the Vishesh Krishi Gram Udyog Yojana scheme. One more country, Timor Leste, was added under the Focus Market Scheme (FMS). Financial support for setting up warehouse in Latin America for handicrafts was also announced.
The commerce ministry also said several issues had been taken up with the finance ministry like reducing interest for dollar credit to LIBOR plus 1 per cent, continuation of interest subvention of 2 per cent provided to labour-incentive sectors beyond March and extending the same to more sectors and for non-crystallisation of overdue export proceeds for a period of 6 months from the due date in respect of carpets and handicrafts.
The incentives under schems like FPS and FMS are available by way of duty credits that can be sold. They remind one of the cash assistance that the exporters used to earn in the pre-reform days. It is worth recalling that Manmohan Singh, the then finance minister, started the reform process in July 1991 by devaluing the rupee and abolishing the cash assistance. He also substantially abolished import restrictions and slashed import duty rates.
The commerce ministry is fond of schemes that will bring exporters to them repeatedly, seeking some concession or the other. More the discretion as to what products can be covered under the schemes, the better it is for the ministry. This breeds a system of patronage that the economy can do without.
The best course for the finance ministry is to cut the duty rates across the board and abolish the exemptions. That will lead to simplification that will reduce the transaction costs. Export promotion through subsidies did not work in the pre-reform days. They are unlikely to work now.
Email: tncr@sify.com
