NEW DELHI: Amid concerns over the widening current account deficit, a government panel has suggested fiscal and non-fiscal incentives including enhanced interest subsidy of 4 per cent to boost exports from MSME sector.
The six-member inter-ministerial committee headed by Finance Secretary R S Gujral was constituted by the Cabinet Secretary to suggest short and medium term measures to enhance exports from the Micro, Small and Medium Enterprise sector.
"The cost of export credit for MSMEs varies from 11-14 per cent. This is on the higher side compared to international standards. There is a need to lower the interest rate for MSME exporters... The Committee recommends that an additional 2 per cent interest subvention may be provided to exporters who repay on a timely basis," the report said.
The government, meanwhile, has hiked the interest subsidy to 3 per cent from 2 per cent - still a percentage point lower than the panel's suggestion - to encourage exports.
The CAD - the difference between inflow and outgo of foreign currency - touched a historic high of 4.8 per cent of GDP in 2012-13, mainly on account of increasing imports and declining exports.
The Committee has, however, suggested that the incentives should be limited for a period of five years in view of the need to curtail fiscal deficit.
"...a number of the recommendations would increase the budgetary expenditure/reduce tax revenue and consequently add to the strain on fiscal deficit...(it) has suggested that the benefit may be limited to a period of 5 years," it added.
It has recommended that export credit limit to MSME units may be increased by 20 per cent automatically and an alternatively credit limits could be set in US dollars wherever possible.
It said that banks should aim at earmarking 40 per cent of export credit by banks for MSMEs and the buyer's credit limit under automatic route should be increased from USD 20 million to USD 50 million.
The committee has also asked for relaxation of RBI's external commercial borrowings norms, to allow all categories of MSME engineering exporters to raise ECBs for import of capital goods and equipment.
For better marketing and brand development of products, it has recommended to double the budgetary provisions for Market Development Assistance(MDA)/Market Access Initiative (MAI) schemes from present level of Rs 50 crore/Rs180 crore to Rs 100 crore/Rs 300 crore respectively.
"...as 50 per cent of India's exports are to Asia, MDA/ MAI may focus more towards Asia," it said.
It has also suggested ways to increase productivity, technology and skill upgradation of MSME units.
Besides, it said: "Ministry of Labour and Employment should expeditiously examine this issue, especially regarding the restriction of the overtime cap of 50 hours a quarter. The Central Act provides for 50 to 150 hours overtime. Women may be allowed to work at night with safety mechanism in place," it said.