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Review of exports sops likely after Budget

The commerce department will review all exports incentives after the forthcoming Union Budget, as it looks to allocate resources more effectively in the new fiscal year, a government official told ET.

"Most of the incentives provided by finance and commerce ministries are running out on March 31, 2010 and a decision has to be taken on what should be extended in the next fiscal," said the official, who asked not to be named.

The finance ministry has to take a call on continuing the interest rate subvention or discount on loans for select export sectors. The commerce department will have to review the export promotion schemes such as focus product, focus market and market linked focus product schemes where exporters are given duty free scrips as incentives for exporting specific products and to specific markets.

"We will be able to give out only as much as we are given by the finance ministry in the Union Budget," the official said, adding that it was unlikely that the department would be given as much as it had sought as there were other claims that are to be met.

Following a demand slump in the Western markets, in December 2008 the government provided support to exports through interest rate subvention for labour intensive sectors, additional allocation for export incentive schemes and government back-up guarantee for exports.

While most of these were continued in fiscal 2009-2010, at an approximate cost of Rs 2,000 crore to the exchequer, there is a question mark on how many would be extended in the coming fiscal as the government has started debating the need to pull back stimulus since the economy has started showing definite signs of improvement.

Even exports have grown for three months to January 2010 after thirteen straight months of contraction. In addition to these incentives, the commerce department had last month announced further sops for more than 2,000 products at an estimated cost of Rs 400 crore till March 31, 2010.

"Once we know the funds that the finance ministry is willing to sanction to us for the next fiscal, we will work out which are the sectors where our support should continue and where it could be possibly withdrawn," the official said.

Exporters, however, do not think that it is a good time to take back the stimulus as they feel that the growth in the Western markets could be short-lived.

"The stimulus provided for exports should continue till export stabilises as there is a question mark over the growth in most economies once the huge stimulus poured into the economy are withdrawn," said Fieo president A Sakthivel.

Sectors such as fruit & vegetables, marine products, fabrics and tobacco that are doing well and others such as gems & jewellery, drugs, plastics and petroleum products that are showing improvement but there are others such as engineering goods, jute, carpets, handicrafts and leather goods which continue to be in bad shape.

Source : The Economic Times