Slew of measures to help exporters battle rising rupee

EXIM MATTERS

As expected, the finance ministry has partially accepted the recommendations of the commerce ministry for a package of fiscal measures to help the exporters tide over the problems caused by the sudden strengthening of the rupee vis-à-vis the dollar. The measures will largely help the sectors where the import intensity is less. Small exporters across the board will also get some relief.

The drawback rates have been raised by 2 per cent to 3 per cent in absolute terms for the targeted sectors. For example, the rates for silk fabrics are up from 8.3 per cent to 10.8 per cent, for dyed cotton fabrics from 5.7 per cent to 7.7 per cent and so on. Such changes translate into 10 per cent to 40 per cent of the existing drawback rates. The value-caps have also been raised.

The Directorate General of Foreign Trade (DGFT) has also notified the revised Duty Entitlement Pass Book (DEPB) rates. The rates have been raised for items in the targeted sectors by 2 per cent to 3 per cent. The revised rates, here in also, will be effective from 1st April 2007. The DGFT should also order issue of DEPB for the difference without any need to furnish fresh supplementary applications.

The Reserve Bank has issued instructions to banks to grant export credit at concessional rates within a ceiling of 4.5 per cent below prime lending rates for sectors such as textiles, readymade garments, leather products, handlooms and handicrafts, toys and all small and medium enterprises, in effect, all units that have an investment in plant and machinery up to Rs 10 crore. The exporters have welcomed the package but expressed disappointment that the measures fall short of commerce minister's recommendations that asked for 5 per cent increase in drawback and DEPB rates, reimbursement of service tax on services relating to exports and reduction of premium on export-credit guarantees

The size of the package is quantified at Rs 1400 crore but Rs 600 crore out of this relates to speedy reimbursement of deemed export dues such as refund of terminal excise duty, central sales tax etc. Reimbursement claims in respect of deemed export benefits are received and payments made by the commerce ministry, subject to monthly and quarterly ceilings on expenditure. Exporters had represented that these ceilings restricted their right to receive payments expeditiously. The commerce ministry therefore, requested a relaxation from these ceilings. The finance ministry has agreed to the request.

The relief measures can at best bring some temporary relief to exporters. A stronger rupee hurts not only the exporters but also the domestic manufacturers who have to cope with imports that have become cheaper due to lower Customs duty rates and dollar depreciation.

The bigger worry, however, is the impression gaining ground that the government and Reserve Bank have no clear idea of how to cope with the strong inflows of foreign currency. A clearer articulation of the priorities and strategies by the government and Reserve Bank will help exporters and importers take up foreign exchange exposures with greater certainty.

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