Understanding Export Subsidies: Benefits, Drawbacks, and Key Schemes in India

Export subsidies are financial incentives provided by governments to encourage domestic producers to sell their goods in foreign markets. These subsidies help make a country's products more competitive internationally by lowering their effective price. In this article, we will explore the concept of export subsidies, who levies them, and the positive and negative impacts of such policies. Additionally, we will delve into two significant export subsidy schemes in India: the Duty Drawback Scheme and the Merchandise Exports from India Scheme (MEIS).

What is an Export Subsidy?

Export subsidies are financial incentives given by a government to support domestic producers in expanding their market share in foreign countries. These incentives can take various forms, including direct cash payments, tax breaks, or reduced shipping costs. The primary goal of export subsidies is to boost international competitiveness by lowering the effective price of the exported goods.

Who Levies Export Subsidies?

Export subsidies are typically implemented and funded by national or regional governments. They are part of broader economic policies aimed at:

Boosting exports Supporting domestic industries Achieving trade balance

International trade agreements or organizations like the World Trade Organization (WTO) can also influence the use of export subsidies and mediate disputes between member countries.

Impacts of Export Subsidies

Positive Effects

Promoting National Industries: Export subsidies can help domestic industries grow, create jobs, and increase foreign exchange earnings. Strengthening Export Competitiveness: By making products more competitive, export subsidies can enhance a country's export performance.

Negative Effects

Tariff Conflicts: Export subsidies can distort international trade, leading to tensions with trading partners. Retaliatory Measures: Other countries may implement retaliatory measures or impose countervailing duties.

While export subsidies can promote national industries, they can also lead to complex trade dynamics and disputes on the global stage.

Key Export Subsidy Schemes in India

Duty Drawback Scheme

The Duty Drawback Scheme is a prominent export incentive in India. Under this scheme, the Customs directly transfers a percentage of the amount calculated on the basis of Free On Board (FOB) value to the account of the exporter. This compensation is provided to offset the central or state taxes paid by the exporter during the production and export process, from purchasing raw materials to exporting finished or semi-finished goods.

Merchandise Exports from India Scheme (MEIS)

The MEIS scheme is another significant export subsidy program in India. Unlike the Duty Drawback Scheme, the Customs does not issue an amount directly to the exporter's account. Instead, it issues a credit scrip, the value of which is calculated based on the FOB value. This credit scrip can be used to offset any pending payments related to import duties or sold to other importers for cash.

These schemes have been designed to support and incentivize Indian exporters, enabling them to compete more effectively in the international market.

In conclusion, export subsidies play a crucial role in supporting domestic industries and enhancing a country's export competitiveness. However, they also come with potential negative impacts, such as tariff conflicts and retaliatory measures from trading partners. In India, the Duty Drawback Scheme and MEIS are key programs that provide financial support to exporters. Understanding these schemes can help Indian businesses leverage these benefits to boost their global market presence.