Costs and Benefits of Export Promotion Schemes

1
Costs and Benefits of Export Promotion Schemes

• Comments on ICRIER Report by Sukumar Mukhopadhyay

2
Export Incentives

• Why we need them
• How are they structured
• What is their impact

3
Why we need export Incentives?

• Destination basis of taxation
• Remove domestic taxes on inputs
• Encourage domestic value-addition
• Drawback of import duties on goods (parts, raw
  materials, and capital goods) used in export
  activities
• Subsidize exports to improve competitiveness
• Subsidies to offset cost disadvantages
• hidden costs of domestic user charges
• Other costs?
• Subsidies in excess of identified cost
  disadvantages

4
Why we need export incentives?

• Paper raises important issues about definition of
  subsidies
• Definition of neutral benchmarks essential to
  delineate subsidy elements
• Destination-basis of tax (zero-rating of exports)
  does not extend to user charges or duty drawbacks
• Duty drawbacks could be viewed as an incentive or
  simply a means of limiting tariffs to imports for
  domestic production and consumption
• Need for much greater clarity about the
  objectives of a policy

5
How are the incentives structured?

• Selective or general
• No need for selectivity where the aim is to have
  destination-based taxation
• Is selective application of incentives a source
  of economic distortion
• Incremental?
• Only subsidies need to be limited to incremental
  exports
• Difficulty to define and measure incremental
  activity
• Multiplicity of incentives
• No comment on other incentives or disincentives,
  e.g., SFIS, Service Tax on export industries?
• SEZs vs Other Incentives
• Administration and compliance costs of incentives

6
What is the impact?

• Exports depend on so many variables
• Exchange rate
• Domestic infrastructure and investment climate
• Global economic conditions
• A simple comparison of export growth before and
  after DEPB is too simplistic to draw any
  inferences about its impact
• Comparisons limited to merchandize exports
• Complete neglect of Service exports
• Important distinction between policy instruments
  for
• exports vs competitiveness
• Exports vs FDI

7
Competitiveness

• Labor laws and skill shortages
• Infrastructure
• Power
• Transportation
• Financial
• Regulation and corruption
• Customs facilitation
• FDI approvals