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Amid concerns over the widening current account deficit, a government panel has suggested fiscal and non-fiscal incentives including enhanced interest subsidy of 4% to boost exports from MSME sector.
The six-member inter-ministerial committee headed by Finance Secretary R S Gujral was constituted by the Cabinet Secretary to suggest short and medium term measures to enhance exports from the Micro, Small and Medium Enterprise sector.
"The cost of export credit for MSMEs varies from 11-14%. This is on the higher side compared to international standards. There is a need to lower the interest rate for MSME exporters... The Committee recommends that an additional 2% interest subvention may be provided to exporters who repay on a timely basis," the report said.
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The government, meanwhile, has hiked the interest subsidy to 3% from 2% - still a percentage point lower than the panel's suggestion - to encourage exports.
The CAD - the difference between inflow and outgo of foreign currency - touched a historic high of 4.8% of GDP in 2012-13, mainly on account of increasing imports and declining exports.
The Committee has, however, suggested that the incentives should be limited for a period of five years in view of the need to curtail fiscal deficit.
"...A number of the recommendations would increase the budgetary expenditure/reduce tax revenue and consequently add to the strain on fiscal deficit...(it) has suggested that the benefit may be limited to a period of 5 years," it added.
It has recommended that export credit limit to MSME units may be increased by 20% automatically and an alternatively credit limits could be set in US dollars wherever possible.
It said that banks should aim at earmarking 40% of export credit by banks for MSMEs and the buyer's credit limit under automatic route should be increased from $20 million to $50 million.
The committee has also asked for relaxation of RBI's external commercial borrowings norms, to allow all categories of MSME engineering exporters to raise ECBs for import of capital goods and equipment.
For better marketing and brand development of products, it has recommended to double the budgetary provisions for Market Development Assistance(MDA)/Market Access Initiative (MAI) schemes from present level of Rs 50 crore/Rs180 crore to Rs 100 crore/Rs 300 crore respectively.
"...As 50% of India's exports are to Asia, MDA/ MAI may focus more towards Asia," it said.
It has also suggested ways to increase productivity, technology and skill upgradation of MSME units.
Besides, it said: "Ministry of Labour and Employment should expeditiously examine this issue, especially regarding the restriction of the overtime cap of 50 hours a quarter. The Central Act provides for 50 to 150 hours overtime. Women may be allowed to work at night with safety mechanism in place," it said.
The Committee feels that the levels of capital investment for defining MSMEs are too low.
Accordingly, it "recommends enhancement of the capital investment criteria by at least 50 per cent for MSMEs. This is essential to ensure price competitiveness through some economies of scale, as well as to ensure export surplus."
To promote MSME exports from the defence sector, it has suggested that the Ministry of Defence must re-examine in detail the procedure outlined in the offset policy, so that it can be leveraged to boost the capability and exports of high tech items from MSMEs, particularly in the engineering and electronics product groups.
To enhance innovation at low cost, a list of dead patents may be provided to SMEs.
It said there is a need to have a supportive duty and incentive structure for the sector, so that the manufactured product is at a competitive price at the international level.
"Products of MSMEs need more incentives as MSMEs have a limited resource base...The MSME units need more hand-holding and better risk mitigation," it said.
The Committee suggested a differential tax regime for 5 years for MSME exports with exports profit being taxed at a lower rate of 5 to 10 per cent.
"For marketing expenditure related to development of export market and sales, the Committee recommends 200 per cent deduction in respect of MSME exporters," it said adding, that export turnover/profit deduction for MSMEs may be introduced for a limited fixed period of five years (2014-15 till 2018-19).
It said export incentives for large exporting units may be phased out and focused incentives provided for the MSME sector. It recommended additional export incentives for export of High Tech items.
It also asked for differential freight rates for MSME.
For insurance cover, it said Export Credit Guarantee Corporation may consider introducing a new scheme for MSMEs permitting banks to cover segment/sector specific portfolios.
In order to expedite the process of rebates and refund for MSME exporters, the Committee suggested ways for quick payment of drawback, refund Of excise duties and VAT.
Further, it said good infrastructure facilities ensure the proper delivery and safety of the exported product along with savings in time and cost.
It has recommended to improve infrastructure facilities that include allowing export consignments under incentive schemes on a 24X7 basis to ensure faster delivery of product.
"According to FTP provisions, no export consignment shall be detained at ports. The Committee recommends that CBEC should issue Circular again (earlier circular in 2011), so that consignments are not stopped at the port," it said.
The Committee also suggested sector (Chemicals, handicrafts, leather, textiles, plastics, agricultural and food processing products) specific measures to boost exports.
Besides, it asked the government to take steps for specific market related problems. "There are various problems faced by MSMEs in markets like EU and US".
