Govt likely to announce incentives for MSME exporters

Worried over widening current account deficit (CAD), the government is expected to soon announce incentives for exporters in small and medium enterprises sector to further boost the shipments.

The government is considering several initiatives, including increasing the rate of interest subsidy from 2% at present and providing financial assistance for product designing and skill development, a senior Commerce Ministry official told PTI.

"A committee headed by Finance Secretary R S Gujral would soon submit its report on the matter. The committee was formed to suggest ways to enhance exports from MSME sector," the official said.

The share of MSMEs in the country's total exports was about 40%.

However, the official said a mechanism needed to be worked to prevent misuse of the high interest subsidy provision by the MSME players.

"Such differential reward system creates problem. A non- MSME firm can take benefit from this," he added.

India's exports entered the negative zone after a gap of four months, recording a contraction of 1.1% in May and leading to a trade deficit of $20.1 billion, highest in the last seven months.

In 2011-12, the country's shipments declined by 1.76% to $300.5 billion. Trade deficit touched an all time high of $191 billion during the period.

Increasing exports is necessary for bridging the CAD which has been estimated at 5% of the GDP in 2012-13 as against the RBI's comfort level of 2.5%.

High CAD puts pressure on the domestic currency and can expose the economy to balance of payments problem.

It also impacts the country's foreign exchange reserves.CAD had touched a record high of 6.7% in the October - December quarter. CAD occurs when country's total imports and transfers are higher than its total exports and transfers.

Federation of Indian Micro and Small & Medium Enterprises (FISME) President V K Agarwal has suggested the committee to announce ways to increase product competitiveness of the MSME products in the world market.

"There is need to reduce various impediments which is the sector is facing. There should be a grievance redressal cell. They should announce a set of reforms to boost exports from MSMEs," Agarwal said.