Exporters unhappy with bail-out plan

Enthused by Commerce Minister Kamal Nath's announcement of the possibility of a cut in service tax for exporters nearly three months ago, Delhi-based textile and handicraft exporter S P Aggarwal went ahead and cut prices by nearly 10 per cent.

Today he is an angry man, because the export package that the finance ministry announced two days ago to help exporters tide over the appreciating rupee is silent on this key issue.

"There is no mention of the promised notification of the service tax exemption. As a result, my margins are depleting and I am going to take an additional hit. The finance ministry measures are nothing but a lollipop thrown at us, which looks tempting from the outside, but is not good enough. I have been making losses and there are no orders at the prices that I have quoted," said Aggarwal, also the president of the Delhi Exporters' Association.

The service tax exemption would add nearly 4 per cent to their margins, exporters say.

Aggarwal's anger is perhaps understandable since measures like decreasing interest rates on export credit by two percentage points may not help as export orders have actually stopped.

"The rise in the rupee forced me to increase the cost of items which were earlier sold at $2 to $2.24. Foreign buyers are not interested as cheaper Chinese options are available. If I have no orders, why will I take credit even at reduced interest rates?" he wondered.

Other exporters add that raising the duty drawback rates "" the scheme under which exporters are reimbursed a part of the duty paid on inputs "" is also meaningless as the process of receiving them is long drawn. They want much faster disbursal of the drawback benefits, as they have virtually no reserves to fall back on.

This apart, export credit benefits will be valid only till 31 December, 2007, which exporters say is too short a period for cushioning losses.

"It takes at least two months to negotiate orders and another month to service them. I fear we will not be able to avail of the benefits as a result," said Prem Malik, chairman, Cotton Textiles Export Promotion Council.

Malik added that his sector is unlikely to achieve the export target of $6.2 billion set for 2007-08.

Mukhtarul Amin, chairman, Leather Export Promotion Council, also believes that the finance ministry measures should have included more of commerce ministry's suggestions. "The rupee has appreciated by around 11 per cent, while our margins are around 5.5 per cent."

Amin added that leather exporters will now approach their international clients with revised quotations. Handicraft exporter Prince Malick is thinking of doing just that, so that he can retain his international clients and minimise losses.

"The export credit benefit has opened up a window of nearly 2 to 3 per cent and we will try to re-negotiate our earlier quotations. But it is only a marginal relief," he said.

According to Vijay Aggarwal, chairman, Apparel Export Promotion Council, the sector will not be able to meet the target of 12 per cent growth for 2007-08. "At the most, it would help cushion some losses," he said.