The Telegraph
Since 1st March, 1999
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Package to bail out exporters

New Delhi, July 12: The government today announced a Rs 2,000-crore relief package for exporters who have been badly bruised by the appreciation of the rupee.

Among the measures are a rise in duty drawback rates and release of more funds to clear the arrears in this incentive scheme.

Under duty drawback, the government reimburses exporters the import duty paid on raw materials.

Besides, interest rates on short-term loans to exporters have been reduced to 6.5-7.5 per cent from 8.5-9.5 per cent.

This relief is for small and medium enterprises and bigger entities in nine sectors — textiles, readymade garments, handicraft, leather, engineering goods, marine products, sports goods, toys and processed farm products.

Exporters have been complaining that the steady rise in the value of the rupee has made their products uncompetitive vis-à-vis China and Southeast Asia.

Commerce minister Kamal Nath had taken up the case for exporters with Prime Minister Manmohan Singh and finance minister P. Chidambaram.

Finance secretary D. Subbarao said the North Block was “under pressure” to help “exporters affected by an unanticipated appreciation in the value of the rupee”, while announcing the relief.

Credit will now be given at 4.5 per cent below the prime lending rate compared with 2.5 per cent earlier.

The prime lending rate is the interest banks charge their best clients; it is now about 11-12 per cent.

Since these rates will be given at 4.5 per cent below the prime lending rate, banks will charge an interest rate of 6.5-7.5 per cent.

Banks now lend money to exporters as pre-shipment credit for 180 days and post- shipment credit for 90 days at rates which are 2.5 per cent below the prime lending rates.

“The interest foregone will cost about Rs 500-600 crore,” government officials said. The Reserve Bank will soon issue a circular to all scheduled banks, they added.

In duty drawback, the government has decided that the lower rates will apply retrospectively from April 1. Such rates are usually valid from a date after the announcement.

However, in primary steel, dyes and chemicals, the rates will apply from a later date because these items have gained from a cut in import duty on raw materials.

Duty drawback reimbursements are usually made on a monthly or quarterly basis.

Exporters have been complaining of a backlog because of a ceiling on reimbursements. Subbarao said this limit had been relaxed so that the payments could be made in full. “This special interest package till December this year will cost the government about Rs 600 crore more,” he said.

The government will also incur an additional expenditure of Rs 800 crore on the hike in drawback rates.

Subbarao said the government wanted market forces to determine the value of the rupee, and there were no plans for intervention in the money market. Even as he said so, the Reserve Bank today intervened in the market to halt the rupee rise.

Mixed mood

The industry today welcomed the package, although it fell short of expectations.

“The effectiveness of the increased duty drawback rates from April will provide some cushion to exporters whose profitability has been eroded continuously due to the appreciation of the rupee,” president of the Federation of Indian Export Organisations, Ganesh Kumar Gupta, said in a statement.

Ficci said the measures would help exporters achieve the target of $160 billion set for the current fiscal.

“Higher duty drawback can go a long way in offsetting the rupee rise and it was important to offset other taxes and imposts on export production at different stages,” Ficci president Habil Khorakiwala said.

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