Exporters get more sops to counter rupee blues

Finance ministry extends export credit and tax breaks to more industries.

The finance ministry today extended export credit and tax breaks to more industries as the rupee's appreciation to a nine-year high against the dollar has made goods sold overseas more expensive.

The measures include increasing the number of services on which exporters are granted service tax exemption and refunds, re-introducing interest payment on the Exchange Earners Foreign Currency (EEFC) account and extending the period and scope of pre- and post-shipment credit.

The incentives have been announced a day after exporters met the Reserve Bank of India demanding, among other things, interest payments on their EEFC accounts. Exporters receive their payments from foreign customers in such accounts. With the account becoming interest-bearing, they now have an option to park their payments (made in foreign currencies like dollar) in the account, and withdraw them, when the dollar strengthens.

Indian exporters have seen their margins hit by the recent appreciation of the rupee, which has touched a nine-year high of 39.49 against the US dollar. Today's measures seek to further help exporters to cushion losses. Exporters can now claim exemption and refunds of the service tax on three new services - general insurance, technical testing and analysis and technical inspection and certification.

Reacting to the move, Commerce Minster Kamal Nath said his ministry would push for more sops to exporters. "We will continue to engage with the finance ministry for additional relief to exporters, including adding more services to the exempted list. We also want more sectors to qualify for interest rate subvention", he told reporters.

Nath added that Prime Minister Manmohan Singh had asked C Rangarajan, chairman of the PM's Economic Advisory Council, to recommend more measures to stem export losses as well as to deal with the recent slowdown in industrial activity. "The report is expected in a month", he said.

Nath added that the sops meant that Indian exports would reach the earlier estimated $ 160 billion mark by March next year.

The Federation of Indian Exporter Organisations (FIEO) said the measures would partly help alleviate exporters' problems. "This will help, but I do not think that the export target will be achieved. Exports for the year would not exceed $ 140 billion", said Ganesh Kumar Gupta, chairman. In July 2007, the government had announced a set of measures that included accelerated reimbursement of dues to exporters, reduction in the interest rate on pre-and post-shipment credit, increased drawback as well as duty entitlement passbook (DEPB) rates. The total financial relief of these measures was then estimated at Rs 1,400 crore.

Subsequently, in September, the government took another measure to help exporters. It decided to refund the service tax, a 12.33 per cent liability incurred by exporters on account of four services that they use. These include port services, goods transport, railways transport and other port services. At that time, exporters had said this was not enough and demanded that a dozen major services used by them be exempted.