Export incentives : the impact of recent policy changes

India's trade policy regime has changed dramatically since July 1991. The objective of reform has been to improve export performance by improving export incentives and eliminating discretionary controls. Using a simple model, the author sets out to examine whether export incentives actually improved as a result of policy changes. One part of the two-part model compares export profitability across regimes, The other compares the gap between domestic and export profitability across regimes. The export base is divided into eight subsectors, and several simulation exercises are applied to each of them. The main results: 1) For most export sectors, export profitability was lower under the dual exchange rate regime (March 1992 - February 1993) than in the period before July 1991; 2) the gap between domestic and export profitability increased in the period of the dual exchange rate regime, meaning that domestic sales, already more attractive than export sales, became even more so; 3) this adverse movement in export incentives was reversed with unification of the exchange rate in March 1993. Overall, the regime has moved closer to its eventual goal of being neutral about import subsitution and exportpromotion, which is reflected in a significant change in the attitude of India's corporate sector toward exports. It is more than a coincidence that the export surge in fiscal 1993-94 was led mainly by the sectors that witnessed the greatest increase in export profitability.