Cash subsidies on exportable items
Wednesday, 3 October 2007
Ahmed Showkat Masud
GLOBAL economy has been changing rapidly. Our country is not a isolated one from the global economy. We have seen how the price-hike in the international market influences the prices of commodities in the domestic market.
Our government announced cash subsidy for 14 exportable items. It will help to diversify our exportable items. Since we are dependent on import of consumer -- both essential and luxury -- items, the decision taken by the government will help reduce the trade deficit.
Exporters make shipment of their export items on FOB (Free on Board) basis. Then they receive export proceeds. Exporters will receive 20 per cent cash subsidy on their export proceeds. It will take effect from the current fiscal year.
All of the 14 exportable products will not receive cash subsidy of 20 per cent. The rate will vary, depending on the kind of items. For agro-products, it will be 20 per cent. For leather products, it will be 15 per cent as per the central bank's circular. The cash subsidy will range from 5.0 per cent to 20 per cent depending on the types of the items.
In case of essential consumer items, the government is trying its best to control prices. This has been done for holding the prices of essentials under control within a tolerable level for the common people. It could not be achieved without government's intervention. Price ceilings impose a maximum price for a product. Price floors impose a minimum price on a product. Agricultural support policies are examples of price ceilings and price floors. All these have been done by our government to tame the inflation rate -- and contain it within a tolerable level. Some improvements have already been noted. The price sugar may be cited here. This improvement has been achieved by the policy intervention of the government. No price ceiling or price floor was there in case of sugar. But the government could help arrest the price of sugar through duty withdrawal. It is an example of public policy intervention. Price ceiling is required when there is supply shortage of a product or service. Government intervention to control the market for common people is required when the price of an item goes up more because of increased demand than shortage of supply. The government has taken allout efforts in this regard to stabilise the inflation rate. But the situation demands more stabilisation of prices of essential items.
Under such circumstances, the country will benefit from the decision of providing cash subsidies to 14 exportable items that ranges from 5.0 per cent to 20 per cent. It would be beneficial for employees. If employment rate improves, purchasing power will also improve for the common people. This will help stabilise the market price by increasing purchasing power of the employed persons. Spending as per aggregate demand would be made. It will also help to smooth out the business cycle. Changes in income by creating employment opportunities affect aggregate demand. Increase in domestic income increases imports and reduces aggregate demand. On the other hand, increased exports that cause increase in foreign income raise aggregate demand. Increasing aggregate demand requires more investment in productive sectors, whether agricultural or any other sector. All such things are related with economic growth of a country.
In this context, we would expect that the decision taken by the government to give cash subsidies to 14 exportable items will increase our country's export volume substantially that will enhance employment opportunities, raise purchasing power of the people and help achieve the targeted economic growth rate.
(The writer works with ONE Bank Ltd at Khatungonj Branch, Chittagong)
GLOBAL economy has been changing rapidly. Our country is not a isolated one from the global economy. We have seen how the price-hike in the international market influences the prices of commodities in the domestic market.
Our government announced cash subsidy for 14 exportable items. It will help to diversify our exportable items. Since we are dependent on import of consumer -- both essential and luxury -- items, the decision taken by the government will help reduce the trade deficit.
Exporters make shipment of their export items on FOB (Free on Board) basis. Then they receive export proceeds. Exporters will receive 20 per cent cash subsidy on their export proceeds. It will take effect from the current fiscal year.
All of the 14 exportable products will not receive cash subsidy of 20 per cent. The rate will vary, depending on the kind of items. For agro-products, it will be 20 per cent. For leather products, it will be 15 per cent as per the central bank's circular. The cash subsidy will range from 5.0 per cent to 20 per cent depending on the types of the items.
In case of essential consumer items, the government is trying its best to control prices. This has been done for holding the prices of essentials under control within a tolerable level for the common people. It could not be achieved without government's intervention. Price ceilings impose a maximum price for a product. Price floors impose a minimum price on a product. Agricultural support policies are examples of price ceilings and price floors. All these have been done by our government to tame the inflation rate -- and contain it within a tolerable level. Some improvements have already been noted. The price sugar may be cited here. This improvement has been achieved by the policy intervention of the government. No price ceiling or price floor was there in case of sugar. But the government could help arrest the price of sugar through duty withdrawal. It is an example of public policy intervention. Price ceiling is required when there is supply shortage of a product or service. Government intervention to control the market for common people is required when the price of an item goes up more because of increased demand than shortage of supply. The government has taken allout efforts in this regard to stabilise the inflation rate. But the situation demands more stabilisation of prices of essential items.
Under such circumstances, the country will benefit from the decision of providing cash subsidies to 14 exportable items that ranges from 5.0 per cent to 20 per cent. It would be beneficial for employees. If employment rate improves, purchasing power will also improve for the common people. This will help stabilise the market price by increasing purchasing power of the employed persons. Spending as per aggregate demand would be made. It will also help to smooth out the business cycle. Changes in income by creating employment opportunities affect aggregate demand. Increase in domestic income increases imports and reduces aggregate demand. On the other hand, increased exports that cause increase in foreign income raise aggregate demand. Increasing aggregate demand requires more investment in productive sectors, whether agricultural or any other sector. All such things are related with economic growth of a country.
In this context, we would expect that the decision taken by the government to give cash subsidies to 14 exportable items will increase our country's export volume substantially that will enhance employment opportunities, raise purchasing power of the people and help achieve the targeted economic growth rate.
(The writer works with ONE Bank Ltd at Khatungonj Branch, Chittagong)