Extension of interest subsidy scheme by another six months for loans taken by exporters operating in few labour intensive sectors was the only fiscal stimulus measure announced in today’s Interim Budget presented by Pranab Mukherjee.
The scheme, which gives two per cent interest rate subvention in export related loans, was to expire in March 31, 2009. The announcement only partially meets the demand from exporters, who wanted the scheme to be extended till December 2009.
“To counter the negative impact on exports due to the global financial crisis, I propose to extend the interest subvention of two per cent on pre and post shipment credit for certain employment oriented sectors i.e. textiles (including handloom & handicrafts), carpets, leather, gems and jewellery, marine products and SMEs beyond March 31, 2009 till September 30, 2009,” said Mukherjee, who last presented the Union Budget 25 years back.
He also stressed the need for further fiscal measures to revive the domestic demand and also support certain sectors that are adversely affected by the global economic crisis. This he said the newly elected government should undertake.
The extension will cost the exchequer Rs 500 crore in 2009-10. The government has announced two fiscal stimulus packages between December 2008 and January, 2009. The first stimulus package announced in December, which included 4 per cent across the board excise duty reduction, cost the exchequer Rs 32,000 crore. The second stimulus package in January first week mostly dealt with easy access to credit for India Inc. The industry was expecting some more fiscal moves by the government in today's budget speech by Mukherjee.
Interest subvention on export loans was first offered in mid 2007, as rapid appreciation of rupee against the dollar shaved off earnings by exporters. In mid 2008, the scheme was extended to March 31, 2009, but subsequently, the benefits were withdrawn from September, 2008 as the rupee started depreciating against the greenback.
Finance Minister Pranab Mukherjee also assured that the government will continue to support the public sector banks, at a time when sources of liquidity are drying up. “The government would recapitalize the public sector banks over next two years to enable them to maintain Capital to Risk Weighted Assets Ratio (CRAR) of 12 per cent and to ensure that credit growth continues to sustain economic growth,” he added.
Later, Finance Ministry officials in a press conference said the government would provide Rs 1,900 crore to recapitalize state-owned banks in the current fiscal. An additional $3 billion (around Rs 14,400 crore) is expected to be given to 17-18 public sector banks over the next two years.
However, exporters remained unhappy with today's announcement. “The extension will help us only till the period it is valid while the global economic downturn may continue beyond that,” said A Sakthivel, chairman of Federation of Indian Export Organisations, the umbrella body of exporters in the country.
Initial estimates available with the Commerce Ministry show that Indian exports is likely to dip over 22 per cent in January 2009. Indian exports have been contracting since October 2008, as overseas clients in countries like the United States as well as Europe are placing lesser orders.
Indian exporters were asking for the scheme to be extended till December, 2009. Moreover, they had also proposed that the export related loans for labour intensive sectors should be provided at a flat rate of seven per cent. Other demands by exporters, include exemption from income tax, service tax as well as additional reimbursements of indirect taxes and duties through enhanced rates of Duty Drawback and Duty Entitlement Passbook Scheme.
