Costs and Benefits of

Export Promotion
Schemes

Comments on ICRIER Report by

Sukumar Mukhopadhyay
 Export Incentives
Why we need them
How are they structured
What is their impact

E
 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

E
 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

E
 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

E
 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

E
 Competitiveness
Labor laws and skill shortages
Infrastructure
 Power
 Transportation
 Financial

Regulation and corruption

Customs facilitation
FDI approvals
E