Costs and Benefits of Export Promotion Schemes Comments on ICRIER Report by Sukumar Mukhopadhyay

E 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