Government audit report recommends rethinking export subsidy policy

A government audit report recommended rethinking the export subsidy policy, as the cash incentive given to manufacturers of export products does not have the expected effect of boosting trade.

The Ministry of Industry, Trade and Supply grants subsidies ranging from 3 to 5 percent of the value of export transactions for a selected group of products.

The recently released annual report of the Office of the Auditor General shows that the amount of cash subsidies granted to exported goods reached 850.69 million rupees in the last fiscal year ended in mid-July, compared to 720.26 million rupees in the previous year. during the previous financial year 2019. -20.

For this fiscal year, the government has allocated a budget of Rs 900 million to give cash incentives to exporters.

“The export figure has increased, but this is due to the surge in exports of palm and soybean oils. The potential for exporting other goods has declined. Therefore, it is necessary to review the policy, ”says the audit report.

Jiblal Bhusal, director general of the Ministry of Industry, said the government provided cash incentives based on merchandise exports.

“We recommend Nepal Rastra Bank to provide a cash subsidy to the industry that meets the export criteria,” he said. “And there is no possibility of claiming the cash incentive without exporting goods.”

Statistics from the Trade and Export Promotion Center show that exports hit an all-time high in the last fiscal year. “Exports have not declined.”

But insiders say that while shipments of palm oil and soybean oil, which Nepal does not produce, were excluded from the export list, shipments of goods like yarn, woolen rugs, clothing iron and steel, noodles and pasta, meat products, jewelry and 28 other products posted a decline over the past year.

The audit report indicates that yarn exports plunged 25.8 percent, wool rugs 16.4 percent, ready-to-wear garments 23.2 percent, iron and steel. steel 54.3 percent, noodles and pasta 39.6 percent, meat products 80.9 percent and jewelry 65.7 percent. percent during the review period.

According to the Customs Department, total exports amounted to Rs 141.12 billion in the last fiscal year 2020-21, up 44.43% from the previous fiscal year 2019-2020. In the previous fiscal year, Nepal’s total exports amounted to 97.70 billion rupees.

But if the soybean oil export is subtracted from the total export figure, the exports of the previous year turn out to be lower than the previous year.

Soybean oil export, which became Nepal’s largest export in just one year, alone accounted for 38 percent of total exports.

Nepal itself produces very little soybean oil, in fact only 31,567 tonnes of raw soybeans per year, which is not enough to meet the needs of even a fraction of its own population.

The country exported soybean oil worth 53.65 billion rupees in the last fiscal year, an increase of 322.7 percent from the previous fiscal year. Shipments amounted to only Rs12.69 billion during the previous fiscal year.

Soybean oil exports rose sharply after India restricted the import of palm oil from Nepal.

Bhusal said palm oil and soybean oil producers were not eligible to receive cash incentives under the export subsidy policy.

Tariff exemptions on Nepalese exports to India under the South Asian Free Trade Area (SAFTA) agreement give domestic traders an advantage. Countries outside of South Asia are hit with 45% tariffs on soybean oil.

Trade experts claim that importing crude oil and re-exporting it to India at zero tariff allows Nepalese traders to make a net profit of 45%, excluding other profits.

They add that Nepalese exporters must meet the 30 percent value added criteria to qualify for the zero tariff privilege, but this is not reflected in the soybean trade.

Contrary to the audit report, exports of some products have increased. According to the Trade and Export Promotion Center, woolen carpet exports increased 17.6% in the last fiscal year 2020-21 to reach 7.244 billion rupees. Exports were valued at 6.15 billion rupees in fiscal year 2019-2020.

Likewise, ready-to-wear exports increased 9.1 percent to 5.31 billion rupees in the last fiscal year compared to 4.87 billion rupees in the previous fiscal year.

Some traders said exports of several products increased in the past fiscal year due to the backlog of orders in 2020, when Nepal’s foreign trade was crippled by the Covid-19 pandemic.

Since most of the raw materials needed to produce goods must be imported, the Ministry of Industry certifies the added value before recommending the company for a cash export incentive.

“By observing the document on value added and the percentage of value added in which process, the department recommends the industry to the central bank for an export cash subsidy,” Bhusal said.

The Ministry of Industry provides the export cash subsidy to the Ministry of Industry and sends the money to the Nepal Rastra Bank.

Bhusal said the government has allocated 900 million rupees to the Ministry of Industry to provide export cash subsidies in the current fiscal year 2021-2022.

Hari Bahadur Karki, chairman of the Nepal Export Council, said Nepalese producers who export goods are granted an export cash incentive if they meet the conditions. “However, the process is cumbersome in terms of collecting documents.”

The lockdown imposed on different occasions also delayed the filing of applications and the receipt of export cash incentives, Karki said.

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