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Friday, 19 April 2013 00:00
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Incentives for exports won’t make them competitive

 

With FY13 exports missing the target by a whopping $60 billion—exports were $301 billion versus the $360 billion target—and there being little chance of meeting the FY14 $500 billion target set a couple of years ago, the question is whether the sops announced in the Foreign Trade Policy (FTP) will add up to much. These include extending the 0% Export Promotion Capital Goods (EPCG) scheme to all sectors, extending the 2% Interest Subvention Scheme to more sectors and introduction of more focus-market schemes. In addition, more incentives have been announced for special economic zones—for multi-product SEZs, the minimum area required now is reduced to 500 hectares from 1,000 hectares and for sector specific SEZs, it is now 50 hectares, down from 100 hectares.

Problem is, India’s export woes are more deep-rooted and will need more than just minor incentives. For one, though India has diversified its export markets—Africa’s share in India’s total exports rose from 5.3% in FY01 to 8.1% in FY12 and to 9.6% in April-November FY13—this isn’t near enough. While South-North trade has remained flat at around 19% of total global trade in the last decade, North-North trade share fell from 40% in 2005 to 30% in 2011 while South-South trade share rose from 19% to 28% in the same period. The share of manufactured products’ exports in India’s exports basket has fallen from 79% in FY01 to around 65% today as industry has lost some part of its edge. Of the top 50 global imports, India has just 6 items. Many of these items—oil, diamonds and jewellery—have a very high import content, so a boost in their exports also means a commensurate hike in imports. Some part of the exports, it is true, have been hit by recent export bans.

While the big relief SEZs expected, on lowering of the minimum alternate tax (MAT), was rejected by the finance ministry, the lowering of size requirements will be of some help. The larger issue, however, is that SEZs have not fared well anyway and that is why there has been a sharp reduction in the number of developers who want to set up SEZs—of the 46 SEZs that have been denotified, 37 were denotified between 2010 and 2012. This is in addition to the withdrawing of applications for getting approvals for SEZs. Of the R3.53 lakh crore of exports from SEZs in FY12, around R81,000 crore comes from IT SEZs and another R21,000 crore from SEZs of other services, leaving R2,62,000 from manufacturing SEZs in FY12. While that is a significant export number, the bulk of this comes from one unit, the Reliance refinery—including deemed exports, total exports from the refinery added up to R1,65,000 crore in FY12. And with the domestic market looking better, Reliance has got 40% of the SEZ denotified recently. In the long-run, there is no alternative to making India’s manufacturing more competitive—rising wages have made things worse. The on-off policies towards agricultural exports aren’t helping either.

 
 

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