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To address the widening current account gap by boosting exports, a Reserve Bank of India committee has suggested a host of measures, a differential tax regime and increasing the scope of the interest subsidy scheme for exporters.
The panel, headed by G Padmanabhan, an executive director of RBI, said as the global trade environment was not expected to improve soon, there was an urgent need to boost exports so that the trade deficit was reduced and the current account deficit stayed within the projected cap. The central bank’s comfort level for the CAD is 2.5 per cent of gross domestic product (GDP). The gap touched a record high of 6.7 per cent in the December quarter of 2012-13, while exports declined 1.8 per cent to $300.6 billion in the year. The trade deficit touched an all-time high of $ 190.9 bn.
The panel has also proposed that export credit be re-included under priority sector lending for all commercial banks, for three to five years, subject to periodic review. RBI recently excluded export credit from priority sector status, after the Nair committee recommendation on review of priority sector lending. It also favoured a sub-target of eight per cent of aggregate net bank credit (within the overall priority sector target of 40 per cent) for exports.
Among others, the committee has made recommendations on review of the Gold Card Scheme for extension of export credit to exporters and raising of foreign currency loans on a pooled basis for extension of export credit.
It says there is a need to widen the scope of the interest subvention to ensure a larger exporter segment derive benefit. The committee recommends “inclusion of additional sectors, such as electronics and all engineering goods, especially the automotive sector and all exports originating from domestic tariff area units to Special Economic Zones”.
As Singapore and Sri Lanka do, it says differential tax rates could be offered to promote exports.
It also asked for early introduction of a goods and services tax to make the structures more streamlined for exporters, who incur numerous levies such as valued added tax, purchase tax, turnover tax, octroi and electricity duty, making export pricing uncompetitive.
Further, the committee recommended continuation of the export credit refinance policy for three years.
It says this would provide certainty in availability of funds to banks for managing their asset/liability positions and also build confidence among exporters.
It asked for setting up a nodal agency to borrow in foreign currency from abroad on a pool basis and then lend to companies in India at competitive rates. “Borrowing on a pool basis will increase the bargaining power of this nodal agency with overseas lenders, thereby ensuring a cost-effective solution to exporters for technological innovation/upgrades/capacity expansion,” it said. It added that the Exim Bank could be made this nodal agency.
