CAD challenge: Govt works upon fresh incentives to promote exports

With the current account deficit (CAD) turning out to be a bigger worry than the fiscal deficit, the government is banking on the 20-per cent hike in the Budgetary allocation for providing loans to exporters at subsidised rates of interest and a fresh package of incentives being drawn up to rev up exports.

CAD is the amount by which export earnings fall short of the import bill and the gap in foreign exchange has to be financed through other means. This leads to a depreciation of the rupee and weakens the economy.

CAD has increased the country's dependence on foreign capital inflow in stock markets but this is "hot money" which can leave at short notice and has the potential of destabilising the economy.

A fresh package of incentives to promote exports is being worked out by the commerce ministry which will also require the finance ministry to forego revenue in terms of concessions such as the duty drawback scheme extended to exporters. This scheme alone could entail a revenue loss in the region of Rs 10,000 crore.

The duty drawback scheme is a refund of the customs or excise duty paid by an exporter on inputs used for manufacturing the finished goods that he has exported.

Other similar schemes for promoting exports include the advance licence scheme, export promotion capital goods scheme and concessions given to exportoriented units and special economic zones.

However, leakages due to overinvoicing by exporters and mismatch between overseas shipment claims and bank transactions has emerged as a major area for concern.

Senior officials of the Customs and Excise Department are of the view that the export incentive schemes such as duty drawback tend to get exploited and cause leakage of revenue. "Numerous cases of over-invoicing of exports merely to claim tax incentives are detected every year and the government needs to keep this in mind when drawing up the schemes," a senior official told Mail Today.

Scams detected earlier include instances of exporters shipping out consignments of worthless rags that were shown as exports to claim duty drawback and other incentives.

The Reserve Bank of India has also detected huge mismatch in the export values declared by exporters and those registered by banks providing them forex services.

"There is a need to reduce transaction cost by ensuring the quick movement of goods at the air and sea ports and increasing e-filing of documents," the official added.

Courtesy: Mail Today