Is Cash Incentive for Exports a Flawed Policy? 

REPUBLICA

KATHMANDU, Nov 12: At a time when exporters are complaining about tedious administrative procedures to get the government-announced cash incentives, experts have advised the government to focus on creating good industrial environment that will prove more effective in bringing down ballooning trade deficit than cash rewards. 

They also stressed on the simplification of cash incentive distribution process so that exporters needn´t wander from one office to another for the cash refund that their exports entitle them to receive from the government as per the existing policy.  

"Merely introducing cash incentives for exports in absence of a conducive investment and industrial environment in the country won´t help boost the exports, which accounted for 22 percent of gross domestic production," said senior economist Dr. Bishambher Pyakuryal at an interaction on Cash Incentives for Export Program in Nepal. 

He emphasized on the need to address the major impediments for the economy such as power shortage, labor unrest, poor infrastructure and high interest rates.

Trade expert Bishendra Man Shakya also underlined the need to address the existing labor problems in industrial enterprises, which have been plaguing the industrial performance and affecting the overall Nepali economy. 

"Cash incentive is not the panacea to narrow down the spiralling trade deficit until and unless we resolve the long running labor unrest in the industrial sector," said Shakya.

Kebal Bhandari, joint secretary at the Ministry of General Administration, said a lack of clear-cut policy and procedure on cash incentives has cast a doubt on the effective implementation of the incentive. 

"Cash incentive distribution process is not only lengthy but also calls for an answer as to who deserves the incentive - producers or exporters. This confusion has thrown the entire scheme into uncertainty," said Bhandari.

Ramesh Sharma, an economist working for UN Food and Agriculture Organization, said it is high time that the government prudently implemented the cash incentive program in the way that contributes to generating employment and promoting Nepal´s export. 

Presenting a working paper on the existing incentive policy, trade researcher Chandan Sapkota said the existing cash incentive scheme introduced by the government lacks the program to boost employment as envisaged by different policies of the government.

"Though the existing Three Year Interim Plan and Trade Policy 2009 have laid emphasis on boosting exports and employment simultaneously, the existing cash incentive has only focused on promoting exports. So, incentives should encourage the products that not only generate employment opportunities but also increase employment in the country," Sapkota said. 

As per the existing cash incentive, exporters of goods with up to 30-50 percent value addition are entitled to get 2 percent of total export revenue as cash incentive. Similarly, those with 50-80 percent value addition are supposed to get 3 percent while for over 80 percent value addition, the cash incentive has been offered at 4 percent of the total export value of a particular product.

"Overall, it shows that sectors that have high value addition don´t necessarily have high value addition per worker. If value addition is the sole criterion, the products that are not listed in NTIS might claim more cash incentive than those having prospect of more employment and social impact," Sapkota said in his working paper. 

The working paper stated that 228 firms producing 18 manufacturing products qualify for 2 percent cash incentive, 209 firms manufacturing 17 products qualify for three percent cash incentive, and 138 firms producing five products qualify for 4 percent incentives. 

"If the sole criterion is value addition, the carpet and rugs exports will claim the highest amount of cash reward, followed by textiles, apparel, pulp and paper board exporters. Very few agro produces and those giving high employment don´t feature to deserve cash incentives," said Sapkota.

(Published in: Republica, 12 November 2011)

Presentation By Chandan Sapkota: Cash Incentives for Export Promotion in Nepal