|
|
The Government's plan to cut back on its Target
Plus program for iron
ore, sugar, and rice exporters is
raising the anger levels of these
exporters. The program was introduced
by the erstwhile National Democratic
Alliance (NDA) Government to encourage
exports. However, the Government's
decision to pare back this scheme is a
well advised.
Firstly, fall in disinvestment due to political
posturing by communists allies of the
Government, lackluster spread of tax
collection, and large rural and social
spend in an election year has
increased fiscal deficit to dangerous
levels. The only saving grace on the
deficit front is the increased inflow
of foreign direct investment and
foreign institutional investor that is
beefing up the foreign exchange
reserves. Baring this save, the
Government will have to devalue the
Rupee harshly. Therefore, encouraging
export in areas that need no
encouragement is a pork-barrel expense
that needs to be cut. |
|
|
|
|
|
|
Secondly, due to poor management of food stocks, there is a
significant fall in wheat
and sugar. Hence, allowing the export of
sugar when India has low sugar stocks will gain money
for the exporters and sugar mill operators in
Maharashtra but horrible for the nation. Cost of sugar
is lowest in India and since there is already only a
marginal rise in sugar production any exports will
force the Government to import sugar at higher cost to
maintain price levels for the common man and also to
check inflation. Obviously, with such a losing deal,
encouraging the export of sugar is not the right
decision.
Thirdly, India has a very low productivity and yield in pulses
and cereals. With Indian agricultural growth already
low and investments in irrigation only now planned,
the risk of exporting existing stocks in lieu of rains
is high. Therefore, instead of encouraging exports,
the Government has chosen to be neutral.
Fourthly, export of raw materials is good for the exporter for
never the country. This is especially true in the case
of iron and ore where India has a competitive
advantage because of the high quality of ore compared
to China [insert iron ore export control news
analysis]. While India does have large stocks of good
ore, a lot of the deposits are in environmentally
sensitive areas, which must be taken only as a last
resort. Exporting good quality iron ore to China from
easily accessible mines at the risk of future mining
and access to good quality iron and ore does not make
sense. This is precisely why the Government is
planning export control of iron and ore and also
withdrawing incentives to export this key resource.
Fifthly, every major export promotion scheme in India has been
misused by the exporter to hide profits, pay lower
taxes, and to the cost of Indian consumer,
environment, and economy. Many of these exporters are
under-invoicing their exports to show lower revenue
and therefore pay lower taxes, taking the full value
from their customers, "buying" their own
stocks at lower prices and selling them
internationally at higher prices again to hide profits
and avoid taxation, and claiming incentives from the
Government.
The Delhi Exporters Association (DEA) is demanding that they should get
the benefits retroactively. This demand should be
rejected with the scorn that it deserves.
|
