Export Incentives: The Impact of Recent Policy Changes in India

Sanjay Kathuria

Indian Economic Review, 1996, vol. 31, issue 1, 109-126

Abstract: Since July 1991, there have been dramatic changes in the trade policy regime in India. The objective of these reforms has been to enhance export performance by improving export incentives and eliminating discretionary controls. By means of a simple model, this paper sets out to examine whether export incentives actually improved as a result of the policy changes. The model is divided into two parts: one compares export profitability (EP) across regimes, and the other compares the gap between domestic and export profitability across regimes. The export basket is divided into eight sub-sectors, and the model applied to each of those sectors. Several sets of simulation exercises have been performed. The dominant results are that relative to export profitability in the pre-July 1991 period, EP declined in the dual exchange rate regime (March 1992-February 1993) for most export sectors. The gap between domestic and export profitability also increased in this period, meaning that domestic sales became even more attractive relative to export sales than they already were. This adverse movement in export incentives was reversed with the unification of the exchange rate in March 1993.

Date: 1996
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