Whither dynamism?

The report about the popularity of the export promotion capital goods (EPCG) scheme in this newspaper is alright as long as this gets reflected in export dynamism, but unfortunately there has been little evidence of this. It won’t do to look at the export obligation but what the union commerce ministry should be concerned about is the growth trend. With a modest performance overall, it is clear that the licenses issued to exporters for import of new as well as second hand capital goods are not getting translated into export efforts to the extent they should be.

Import liberalisation in any country should lead to exports spurting and in the post-reform period despite some very good years generally one can say that exports have not been stimulated by a liberal import regime. After all, capacity addition and modernisation through utilisation of import licenses must help finance not only the cost of imports but earn a great deal more in terms of foreign exchange.

It is obvious that the indigenous market is absorbing the increased output arising therefrom, assuming of course that the output is going up. But, given the slow down in manufacturing output, one cannot make such an assumption. In a dynamic economy, strategies have to reflect dynamism. In this context, it makes no sense to hold up the record of the EPCG scheme as something wonderful, especially when producers are not benefiting as they should be by way of enhanced exports, over and above the obligation made.

One can even argue against incentives such as the scheme and for leaving exporters to fend for themselves. While the government must promote exports so that the BoP position is reasonably comfortable, this must be done less through incentives and subsidies and more through a regular dialogue with manufacturers with export potential.