Budget 2011: Commerce Ministry favours tax sops for doubling exports to $450 bn

NEW DELHI: Amid concerns over the widening trade deficit, Commerce Ministry on Wednesday favoured continuation of stimulus for exporters in the forthcoming Budget to help the country double exports to USD 450 billion in three years.

The suggestion formed part of a draft paper, unveiled by Commerce Minister Anand Sharma, for finalising a strategy to push India's global trade to USD 1 trillion by 2013-14. "One of the major reasons to take this initiative and put it (a strategy) in place on urgent basis is because of the widening balance of trade," he said.

The Ministry has invited comments on the paper from stakeholders by March 23, on the basis of which an export strategy will be finalised by the end of next month. Eventually, it will be added to the Foreign Trade Policy to be unveiled later this year.

While seeking greater budgetary support from the government, the paper favoured a stable policy environment and continuation of the existing incentive schemes. "A stable policy environment is essential for a vibrant foreign trade and accordingly it will be essential to continue with the existing incentive schemes such as duty drawbacks, tax benefits and interest subvention scheme", the paper said days before the Union Budget, to be presented on February 28.

The paper also calls for a technology upgradation fund, financial support to various sectors and special focus on new markets worldwide, besides clearing of infrastructure bottlenecks which may cost about Rs 31.15 lakh crore.
India's exports this fiscal are likely to increase to USD 225 billion, from USD 178.6 billion in 2009-10. The total trade this fiscal is expected to be around USD 550 billion.

The paper has warned that the trade gap, which stood at USD 89 billion during the first 10 months of 2010-11, is likely to increase to around USD 115 billion for the entire fiscal and may further escalate to USD 278 by 2013-14.

"With the initiative that we proposed in the strategic paper, we hope to close the (trade) gap and bring the gap to below 10 per cent or may be close to 9 per cent of the GDP which in the view of those who manage the economy is perhaps is achievable and also manageable," Sharma said.

Trade deficit, the difference between imports and exports, depletes foreign exchange reserves and puts pressure on balance of payments, worsening the current account deficit. "The projected balance of trade deficit (BOT) on merchandise account of 13 per cent (of GDP) is clearly cause of serious concern because it can lead to an unsustainable CAD," the paper said.

It further added, "even with the achievement of an export target of USD 450 billion, the BOT deficit is still likely to be over 9 per cent of GDP, around the same as at present, which may be regarded as just about manageable".