permanent relief to exporters

Need of the day ?? permanent relief to exporters
After months of indecision and lengthy parlays, the government seems to have finally come up with some damage-control measures to help exporters tide over the problems caused by the sudden strengthening of the rupee against the dollar. These relief measures can at best bring some temporary relief to exporters who have been rightly sending SOS messages to the Commerce Ministry to take up the case. It's an undeniable truth that 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.

Rightly for now, the drawback rates have been raised by 2 percent to 3 percent in absolute terms for the targeted sectors. The value-caps have also been raised. Also the Duty Entitlement Pass Book (DEPB) rates have been raised for items in the targeted sectors by 2 percent to 3 percent.

However I feel that 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 percent 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. Let's hope the banks fall in line in accordance with the RBI's recommendations. Implementation is the key!

However the measures fell short of the exporters' recommendations for 5 percent increase in drawback and DEPB rates, reimbursement of service tax on services relating to exports, and reduction of premium on export-credit guarantees. Moreover in actual terms, the size of this package is Rs 800 crore because Rs 600 crore of the Rs 1400 crore relates to speedy reimbursement of deemed export dues such as refund of terminal excise duty, central sales tax, etc.

Interestingly, the whole episode gives the impression that the government and Reserve Bank have no clear idea on how to cope with the strong inflows of foreign currency. I also get a feeling that had there been a better coordination between the government and the Apex Bank, they could have helped exporters and importers take up foreign exchange exposures with greater certainty.

Despite these measures I strongly feel that there has to be a permanent solution to this vexed problem since it is bound to arise fairly regularly in the days to come. I think the government has to find ways to compensate the exporters, disadvantaged by an non-existent infrastructure. And whenever the rupee appreciates, should pass on to them the savings achieved on the imports in the form of cheaper funds. The government generates at the most 1.5% (net of hedging expenses) on a part of the huge forex reserves that it invests in USD-denominated securities. Surely it can generate much more than that if it lends even a fraction of the said investment to our exporters and importers at 5%. It makes sense!


Bikky Khosla