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Govt likely to announce export incentives for SMEs

To further boost exports from country, the government is expected to soon announce new incentives for small and medium enterprise (MSME) exporters, reports media.

The government is considering several initiatives, including increasing the rate of interest subsidy from two percent at present and providing financial assistance for product designing and skill development, a senior Commerce Ministry official told agency.

"A committee headed by Finance Secretary R S Gujral would soon submit its report on the matter. The committee was formed to suggest ways to enhance exports from MSME sector," the official said.

The share of MSMEs in the country's total exports was about 40 percent.

However, the official said a mechanism needed to be worked to prevent misuse of the high interest subsidy provision by the MSME players.

"Such differential reward system creates problem. A non- MSME firm can take benefit from this," he added.

India's exports entered the negative zone after a gap of four months, recording a contraction of 1.1 percent in May and leading to a trade deficit of USD 20.1 billion, highest in the last seven months.

In 2011-12, the country's shipments declined by 1.76 percent to USD 300.5 billion. Trade deficit touched an all time high of USD 191 billion during the period.

Increasing exports is necessary for bridging the CAD which has been estimated at 5 percent of the GDP in 2012-13 as against the RBI's comfort level of 2.5 percent.

High CAD puts pressure on the domestic currency and can expose the economy to balance of payments problem.

It also impacts the country's foreign exchange reserves. CAD had touched a record high of 6.7 percent in the October - December quarter. CAD occurs when country's total imports and transfers are higher than its total exports and transfers, it added.