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Cut Back in "Target Plus" Scheme

 

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.