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In what could further delay the much-awaited credit subsidy scheme for exporters, the department of economic affairs (DEA) has raised reservations about its feasibility.
The country’s exports fell for an eighth straight month in July and continue to face global headwinds on account of muted demand and the Chinese currency devaluation.
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Keeping the fiscal deficit map in mind, DEA, under the finance ministry, has also objected to the commerce department’s proposal of extending the scheme for three years. It recommends the scheme be taken a year at a time.
Commerce and industry minister Nirmala Sitharaman is expected to take up the matter with finance minister Arun Jaitley, seeking a nod for the draft Cabinet note in its present form, to quickly help exporters.
The Cabinet met on Wednesday, but the issue of interest subvention for exporters was not taken up. “We are ready with the note and aimed to get it cleared in Wednesday’s meeting but the last-minute objection by DEA is a block. The scheme is expected to give a competitive edge to our exports. We hope that once the commerce minister speaks to Jaitley, it will get a go-ahead,” said an official.
A Cabinet approval would implement the announcement in the Budget that had allocated Rs 1,625 crore this year for this purpose.
Exports fell an eighth straight month in July, by 10.3 per cent to $23.1 billion. Our exports are expected to further lose due to the impact of the Chinese devaluation.
“We feel we need to have a better idea of what the scheme is being used for and how it will benefit our exports. We have said we need to do a better impact analysis of the scheme. More, we feel it must be extended on a year to year basis instead of three years at a time,” said a finance ministry official.
According to the proposal, the department of commerce will likely extend a three per cent interest subvention after a gap of over a year to a host of labour-intensive sectors with effect from April 1 this year. The sectors include readymade garments, carpets, handlooms, handicrafts, toys, engineering and pharmaceutical products.
The scheme essentially provides credit to exporters at a subsidised rate by banks, which are later compensated by the government. The high cost of credit has affected the working capital and margins of exporters, already facing the heat of weak demand in key economies and slow global economic recovery. The three per cent interest subvention scheme for exports lapsed in April last year.
Besides the sectors covered under the interest subvention scheme a year before, the government is expected to add a few more lines of engineering and pharmaceuticals, given the higher provision in this year's Budget against the ·1,475 crore spent two years earlier.
The scheme was expanded to three per cent from two per cent in 2013-14 for readymade garments, carpet, handlooms, handicrafts, toys and 235 tariff lines in the engineering sector, in August 2013.
Ajay Sahai, director-general, Federation of Indian Export Organisations, asked: "This benefit had been factored in by the trade already. Why is the exercise taken every year, knowing that the cost of credit will not come down in India anytime in the near future?"
Micro, small and medium enterprise exporters gets loans at 12-13 per cent. After thesubvention, this would come down to nine to 10 per cent. However, India's competitors get it at around five per cent.
In 2014-15, exports fell 1.2 per cent from 2013-14 to $310 billion, missing the $340 bn target by a big margin.
After a year’s gap India announced a five-year foreign trade policy this April, aiming for a concentrated push to both merchandise and services exports, to ensure total exports reached $900 bn by 2019-20.
The government had announced tax incentives under a Merchandise Exports from India Scheme and Services Exports from India Scheme, in the form of fully transferable duty credit scrips with a reward rate of two to five per cent. Exporters can use these scrips to offset service tax, excise duty or customs duty.
