Export policy must move away from subsidies

Source: The post “Export policy must move away from subsidies” has been created, based on “Export policy must move away from subsidies” published in “Business Line” on  10th March 2026.

UPSC Syllabus: GS Paper-3–  Economy

Context: For decades, India’s export policy relied heavily on financial incentives such as the Merchandise Exports from India Scheme (MEIS) and the Remission of Duties and Taxes on Exported Products (RoDTEP) to improve price competitiveness. However, rising geopolitical tensions, climate regulations, and protectionist policies are making subsidy-driven strategies less effective. In this context, India must redesign its export policy to focus on structural competitiveness, resilience, and regulatory compliance.

Budget 2026-27 Measures to Strengthen Export Resilience

1. Export Credit and Financial Support: The government has allocated ₹7,295 crore for export credit support, including interest subvention and collateral support. These measures aim to improve access to finance, particularly for MSME exporters, by reducing borrowing costs and easing credit constraints.
2. Customs and Trade Facilitation Reforms: Customs reforms include extending duty deferment from 15 to 30 days for authorised economic operator (AEO) manufacturers and expanding trusted trader clearances. These steps aim to reduce procedural delays and improve predictability in export operations.
3. Boost to E-Commerce Exports: The removal of the ₹10 lakh cap on courier exports is intended to support the growth of cross-border e-commerce, enabling smaller exporters to access international markets more easily.
4. Reduction in Input Costs: The increase in duty-free import limits for seafood processing inputs from 1% to 3% of previous year’s FOB turnover helps reduce input cost exposure for exporters in the seafood sector.
5. Logistics and Infrastructure Investments: A ₹12.2 lakh crore public capital expenditure programme focuses on improving freight corridors, waterways, and coastal cargo infrastructure. These investments aim to reduce logistics costs, which currently account for around 7–8% of India’s GDP.

Limitations of Subsidy-Driven Export Policies

1. Geopolitical Uncertainty

1. Recent global conflicts and geopolitical tensions have increased volatility in international trade.
2. Such disruptions expose the limitations of relying solely on financial incentives to maintain export competitiveness.
3. When supply chains are affected by sanctions, wars, or political tensions, subsidies cannot offset the structural disruptions faced by exporters.

2. Fragmentation of Global Supply Chains

1. The global trading system is increasingly shaped by sanctions, technology controls, and friend-shoring strategies adopted by major economies.
2. These trends fragment global supply chains and alter trade patterns. In such an environment, competitiveness depends more on supply chain resilience and diversification rather than fiscal incentives.

3. Rising Compliance and Climate Regulations

1. International trade is increasingly influenced by environmental and regulatory standards, particularly climate-related regulations.
2. Exporters must comply with sustainability requirements, carbon reporting, and environmental standards.
3. Subsidies alone cannot address these regulatory challenges; instead, exporters need institutional and technical support to meet global compliance standards.

4. Structural Cost Disadvantages

1. High logistics costs, financing constraints, and regulatory delays continue to affect India’s export competitiveness.
2. These structural issues increase production and transaction costs for exporters. Subsidies may temporarily compensate exporters, but they do not address the underlying inefficiencies in infrastructure and logistics systems.

Lessons from Global Export Competitors

1. Several developing economies have strengthened export competitiveness by focusing on structural reforms rather than subsidies.
2. For instance, some countries have significantly reduced customs clearance times and invested in compliance infrastructure to meet global sustainability standards.
3. These measures enhance long-term competitiveness and market credibility in international trade.

Key Areas for Policy Implementation

1. Strengthening Compliance Capacity

1. India must develop carbon accounting and life-cycle assessment facilities in major export clusters, especially in sectors such as steel, textiles, chemicals, and engineering goods.
2. Improving certification systems and reducing approval timelines will help exporters meet international environmental standards.

2. Expanding Export Credit and Insurance

1. Export credit and insurance coverage should be expanded significantly to protect exporters from global market risks.
2. Faster claim settlement and reduced lending costs for MSMEs will enhance financial stability for exporters.

3. Strengthening Trade Diplomacy

1. India needs to adopt a more proactive approach to international trade negotiations.
2. Investing in technical trade diplomacy, regulatory monitoring systems, and sector-specific policy expertise will help India influence global regulatory frameworks and protect its export interests.

Conclusion: The evolving global trade environment requires India to move beyond subsidy-based export policies toward a resilience-oriented strategy. Sustainable export growth will depend on improved logistics, stronger compliance systems, expanded financial support, and proactive trade diplomacy. By focusing on structural reforms and capability building, India can transform its export policy into a framework that ensures long-term global competitiveness and stability.

Question: Why should India move away from subsidy-based export policies? Discuss the need for a resilience-oriented export strategy in the current geopolitical environment.

Source: Business Line