Govt announces more export sops

But falls short of exporters' expectations

Finance Minister P Chidambaram today announced additional relief measures for exporters who have been hit by a 15 per cent annual appreciation in the rupee against the dollar.

This is the third such package since July but it has fallen short of both exporters' and the commerce ministry's expectations.

The measures have been mainly offered to the leather, marine, handicrafts and textiles industries though some global benefits have also been included.

According to commerce ministry estimates, exports dipped 56 per cent in handicrafts, between 6 and 22 per cent in textile-related sectors, and 6 per cent in leather in April to October 2007 over the same period last year.

The highlight of today's measures include a two per cent subvention in export credit (essentially a reduction for which the government bears the burden), exemption of service tax for three more services that exporters use (storage and warehousing, specialised cleaning services and business exhibitions) and lower customs duty on raw materials for textiles. 
 

STRONG RUPEE, WEAK EXPORTS Rupee movement vis-à-vis major currencies (in %)
Currency	Apr 3- Nov 20, '07	Oct '06- Oct '07
US dollar	9.7	15.1
U.K. Pound	5.6	5.6
Japanese Yen	2.5	12.4
Euro	-0.0 (neg)	2.1
Source: Finance Ministry statement in Lok Sabha on 29 Nov, based on average buying and selling rates reported by FEDAI

The interest rate subvention for the four sectors is subject to the condition that the interest rate will not fall below 7 per cent, which is the priority lending rate for agriculture.

The average export credit interest rate is 9 to 9.5 per cent.

The government has also agreed to pay an interest rate of 6 per cent on delayed payments on central sales tax (CST) and terminal excise duty (TED).

The finance ministry has made more money available for CST and TED pay-backs by doubling the reimbursement allocation from Rs 300 crore to Rs 600 crore.

The finance ministry has also cut customs duty on raw materials like polyester intermediates PSF and PFY from 7.5 to 5 per cent, and halved customs duty on man-made fibres to 5 per cent.

Announcing the measures in the Lok Sabha today, Chidambaram said: "The government is sensitive to the pressures on these sectors and is conscious of the need to offer support to them to prevent job losses and to give them time to make a smooth adjustment to the changing economic scenario."

Chidambaram also stated that exporters have been asked to submit data to his ministry to analyse if drawback rates could be cut further.

The finance ministry package comes even as the commerce ministry had recently sent a note to Cabinet seeking more relief for exporters.

Today's measures, demanded by Textile Minister Shankarsinh Vaghela, are only a part of more measures that are expected.

The commerce ministry said the tax break on three additional services falls short of the 17 services for which it had proposed exemptions.

On an average, service tax accounts for 2 per cent of the freight on board value of exports. The commerce ministry estimates that the exemption on service tax given by its finance counterpart would cater to less than one-fourth of the original proposal.

"The four sectors benefiting from interest rate subvention contribute only 20 per cent to the export basket," added a Delhi-based trade analyst.

He also pointed out that exemption from tax on services like commission to foreign agents, a significant component of costs, has been left out.

Exporters also said the increased allocation for TED and CST reimbursement could be hardly called a relief measure.

"These duties are reimbursed anyway and delayed calls for payment of interest," said an exporter.