Export subsidies will help but we should aim to be globally competitive

Last week, the government approved the Export Promotion Mission (EPM) package of ₹25,060 crore and the Credit Guarantee Scheme for Exporters (CGSE) of ₹20,000 crore. Naturally, the exporters have welcomed the schemes because some subsidies and loans will come their way. However, I am not too enthused by such schemes because similar announcements earlier have not helped us achieve even a compounded aggregate growth rate (CAGR) of 3 per cent in exports or increase our share of global merchandise exports beyond 1.8 per cent in the past 11 years. 

The schemes are well intentioned and look impressive on paper. However, past experience shows that the government makes big announcements but actual allocations or disbursements turn out to be much lower. For example, the scheme for Remission of Duties and Taxes on Export Products (RoDTEP) that was touted as a ₹50,000 crore package. The actual allocations and disbursements are less than a third of that amount. 

The EPM aims to consolidate schemes like the Interest Equalisation Scheme (IES) and Market Access Initiative (MAI). Hopefully that will reduce the complexities in administering the scheme. The scheme has two components — the ‘Niryat Protsahan’ that will help the exporters get easy credit at affordable rates and the ‘Niryat Disha’ that will help marketing efforts. 

The scheme will be implemented through the Directorate General of Foreign Trade (DGFT). Much depends on how the scheme will be designed and implemented. The scheme may interest small exporters who lack financial strength. 

The CGSE aims to provide 100 per cent credit guarantee coverage through National Credit Guarantee Trustee Company Limited (NCGTC) to member lending institutions for extending additional collateral-free loans to eligible exporters to help them diversify and expand their markets. 

Apparently, the exporters adversely affected by the hike in tariffs by the United States may be able to overcome their temporary difficulties by taking clean term loans. Also, the exporters venturing to explore new markets may hope to get clean term loans. That may help but much depends on how the lenders respond. There is nothing new about credit guarantee to banks. 

Our past experience shows that the lenders extend credit based on their appraisal of viability of the project, assessment of the borrower and whether, in their judgment, the money lent will be repaid and not on the basis of availability of credit guarantee.  When any loan is not repaid, the individual officers are held accountable for their lending decisions and therefore risk-aversion of officers at the operating levels is unlikely to go away. 

Our poor export performance is not because we do not have enough schemes but because our exports have become less competitive due to scale limitations, higher logistics, documentation and transactions costs, inverted duty rate structure, onerous regulations, pointless litigations, absence from major regional mega trade deals and any meaningful supply chains, higher tariff and non-tariff barriers for imports to protect major domestic producers of raw materials and intermediates etc. 

Most competing economies support exporters through ecosystems like seamless cross border movement of goods, trade facilitation and not subsidies alone. 

EPM and CGSE may help but we must address the reasons for our poor competitiveness. The government should deregulate and review its protectionist policies and decision to stay away from Regional Comprehensive Economic Partnership (RCEP).  The government should cure the disease and not throw taxpayer’s money at the symptoms.  

 

Email: tncrajagopalan@gmail.com