Shipments to the U.S., EU, Asian markets will qualify for additional sops

Faced with a widening trade deficit, the Central Government on Wednesday announced a slew of incentives to reverse the decline in exports, which will fall short of the $360 billion target set for the current fiscal.

The 2 per cent interest subsidy scheme, which was to end on March 2013, has been extended for one more year.

In addition to this, more sectors have been covered under the scheme, with engineering exporters being the major beneficiaries.

Merchandise shipments to the U.S., European Union and the Asian markets will qualify for additional sops. Exporters are facing a demand slowdown in these markets.

Unveiling these incentives , Commerce and Industry Minister Anand Sharma said, “With these measures, we should be able to give a push to our exports in the last quarter of this financial year. The objective is to stabilise the situation and try and move from the negative territory to positive”.

Widening trade gap

He also expressed hope that with the help of these steps, exporters would be able to ship more and help the country reduce the widening trade gap, which touched $175.5 billion between January-November.

Rising trade deficit has been cited by global rating agencies such as S&P as a key area of concern for the Indian economy.

While exporters have welcomed the sops extended by the government, the minister did not quantify the total benefits which would accrue to the sector.

Exports during April-November this year contracted by 5.95 per cent to $189.2 billion. Merchandise exports are in the negative zone since May this year.

On the $360 billion exports target for this fiscal, he said: “Given the global slowdown and the contraction at some of the major destinations of India’s exports, we are finding it difficult to meet the target.”

Global slowdown

Mr. Sharma said that India’s exports should be viewed in the backdrop of the global slowdown, particularly the developments in Europe. As part of the incentive package, the government announced the introduction of a pilot scheme of 2 per cent interest subvention for project exports through EXIM Bank for countries of SAARC region, Africa and Myanmar.

“This scheme will be operational immediately for a combined worth of $500 million to begin with,” Mr. Sharma said.

The objective of the scheme is to boost exports to these countries by providing long-term concessional credit through EXIM Bank as co-financing in infrastructure sectors such as housing, irrigation, road projects and renewable energy.

Besides, a decision has been taken to grant incentive on incremental exports that would be made during January-March 2013 over the base period January-March 2012.

These steps would help in “bringing down the rising trade deficit and keep it at least in percentage terms as it was in 2011,” Mr. Sharma said. He said that sectors such as agriculture managed healthy exports growth.

Mr. Sharma said that rising trade deficit had direct bearing on the current account deficit (CAD) and the domestic currency.

Exporters body Federation of Indian Export Organisations (FIEO) said the extension of interest subvention scheme for one more year much before its expiry shows the pro-active approach of government which will provide stability. “The interest subvention extended to certain sub-segments of engineering sector would add to the competitiveness of engineering exports,” FIEO President M. Rafeeque Ahmed said.

Sharing similar views, Engineering Export Promotion Council Chairman Aman Chadha said reduction in the cost of credit would enthuse engineering exporters to be more aggressive in their export strategy.

More In: Economy | Business