Letter to BS: Govt may have to stop export subsidies within next 9 months

With reference to “Govt may have to stop export subsidies within the next nine months” (April 2), we have been discussing stopping or phasing out export subsidies while formulating every FTP (Foreign Trade Policy), but it is impossible to do so as our cost of production is too steep to compete in export markets. The US is right in its own way, but we are a developing nation and devising export policies compatible with World Trade Organisation (WTO) schemes is hard. With complex local tax structure, labour laws, and high cost of logistics and inputs, incentivised export schemes are the only way out. Only title changes can be done or backdoor subsidies will have to be provided to push exports. A couple of decades ago, we had the Cash Compensatory Scheme which was discontinued. We had REP Licence incentive, which is now replaced with MEIS and SEIS scrips, in addition to schemes now disputed by the US at WTO. We still have the Market Development Scheme that partly reimburses export promotional expenses.

What we lack is sincere efforts to reduce the cost of local production. The primary requirement is low-cost fuel supply. The tax on petroleum products is so high that it inflates transport cost and eats up export profits. It must be waived off. Second, an in-depth look at customs tariffs on raw materials meant for export production is also necessary. When these two aspects are set right, export incentive schemes available in FTP can be minimised.

Further, a new line of thinking is necessary to push exports and widen our export product portfolio. Our export basket mainly consists of petroleum products, engineering goods, pharmaceuticals and textile besides many other groups of low-volume products. The export of natural products such as timber logs, given India’s abundant supply of species such as Red Sanders, Dalbergia sissoo and Dalbergia latifolia, should be encouraged. Besides all other timber species should be auctioned by government depots freely without any licensing riders, and private plantations should be encouraged to grow them. Last year, Niti Aayog suggested various measures that could even bring down import of timber and save forex. These species aren’t available on commercial scale in any other nation, and they fetch eye-popping prices overseas. We should take advantage of this monopolistic situation and make all-out efforts to push such exports.

A Sathyanarayana, New Delhi