Sharma to pitch for interest relief to exporters

IN order to make cheaper funds available, the Commerce Department will soon put in a request to the Finance Ministry to reintroduce interest rate subvention or discount scheme for certain category of exporters.

A Commerce Department official stressed that cost of funds should come down for exporters in order to encourage them to make investments, produce more and stay competitive.

The Commerce Minister, Mr Anand Sharma, may take up the matter with the Finance Minister, Mr Pranab Mukherjee, later this month. It may be recalled that the government gave a 2 per cent discount to eight export sectors two years ago to help them compete better after demand plunged in the developed world due to the financial crisis. The scheme lapsed in the closing stages of the last fiscal when exports grew by an inpressive 37.6 per cent.

Industry sources say that this rapid pace may not be possible to sustain owing to the rising cost of credit.

According to Fieo chief, Mr Ramu S. Deora, the cost of funds for exporters has increased by more than half over the last one year, affecting competitiveness, while interest rate on export credit climbed to 10.75 per cent from 9 per cent in April 2010.

He says that if one takes into account the two per cent subvention given by the government till March 31, the net increase in the cost of funds over a period of 13 months for exporters works out to 53.6 per cent.

Mr K.T. Chacko, Director, Indian Institute of Foreign Trade, points out that exporters in China and other significant developing countries have access to credit at much lower rates than in India.

The facility of interest subvention was available to sectors like handicrafts, carpets, handlooms, small and medium enterprises, leather, jute manufacturing, engineering goods and textiles. Under the scheme, banks would pass on the subvention to exporters and later claim the same from the Centre.

However, taking into account the country's strong growth at present, the Finance Ministry is not too keen on doling out export sops.

Fieo submits new Budget wish-list in face of rising exports

Worried that the Union government may unwind the stimulus measures granted to the export sector in the wake of rising foreign trade, the Federation of Indian Export Organisations (Fieo) Director-General, Mr Ajay Sahai, has submitted a fresh Budget wish-list for the Finance Ministry's consideration. Some of the major points are:

• A turnover tax on exports in place of income-tax. The turnover tax will simplify the tax procedure and reduce the administrative burden on exporters. This tax can be collected at 0.25 per cent on all remittances received from abroad, thus plugging any leakage and reducing the cost of collection.
• Investment-linked incentives for micro, small and medium enterprises (MSMEs) in the export sector. To increase investment in manufacturing, MSME export sectors be given tax concession on investment in capital and machinery.
• Extension of tax holiday by three years for export-oriented units and units in software technology parks.
• Exemption from service tax on all output services for exports.
• Service tax exemption to all export promotion councils.
• The rate of depreciation on old machinery should be increased from 15 per cent to 25 per cent to encourage purchase of new machinery.
• Credit for exporters at a flat rate of six per cent.
• Extension of interest subsidy scheme till March 31, 2013, in case providing export credit at 6 per cent is not feasible.
• Foreign currency credit at the earlier rate of LIBOR plus 100 basis points. (Following the financial crisis, this rate was increased to LIBOR plus 350 basis points).
• Rectification of inverted duties structure in silk and synthetic fibre.

Notification for cash rebate of accumulated Cenvat credit on account of reduction in excise duty.