The Hindu Business Line : How much does export promotion cost?

THE differences between finance and commerce ministries over tax breaks for export promotion have thrown up a larger issue for debate — how much does it cost the country to run the various schemes for exporters?

According to highly placed sources, there are no firm estimates on the current expenditure on export promotion. Since almost all the schemes are exemption based, the Commerce Ministry holds the view that loss of revenue for the exchequer is notional. The Finance Ministry, on the other hand, has back-of-the-envelope calculations to show that export promotion measures which can cost as much as Rs 40,000 crore annually and could be even higher if some of the other benefits provided to exporters is added on.

Available figures suggest that the Duty Entitlement Pass Book (DEPB) scheme involves nearly Rs 11,500 crore in revenue foregone, while the Duty Drawback scheme costs over Rs 3,100 crore. Besides these, there are a number of exemptions for the export sector for which revenue implications are not readily available. For instance, there are tax relief for export-oriented units (EOUs) apart from the fact that all imports by EOUs are tax exempted. Moreover, the concessions have been expanding over the years. The EOU scheme, which has been in operation from the late 80s, initially permitted 25 per cent domestic sale by such units in the first two years and then five per cent sale of the output in the domestic tariff area. In 1999, this facility was expanded and now EOUs can sell up to 50 per cent of their production in the domestic market by paying only 50 per cent of the import duty applicable on such imports. Exemptions are also available to exporters under some sections of the Income Tax Act.

Economists studying Government accounts point out that there is no transparency about the `costs' that are incurred in various export promotion schemes. The figures are not provided in the general budget and there is no debate or Parliamentary scrutiny on them. "When there is so much debate about food or fertiliser subsidy, why is the `expenditure' on export promotion not in the public domain? The expenditure may be entirely justified, but it is necessary to audit it," the economists feel.

A beginning of sorts has been made in this direction with the Prime Minister, Dr Manmohan Singh, asking his Economic Advisory Council to look into four issues of tax exemption for export promotion. But, it not yet clear whether the Council would look into the whole issue of the cost of export promotion or confine itself to the four issues referred to it.

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