Exporters to get more loans, duty drawback rates hiked

The government on Friday conceded to two major demands of exporters with a view to make Indian products competitive in international markets at a time global demand is shrinking and other exporting countries are resorting to similar export incentives.

However, exporters expressed their disappointment saying their demands, including income-tax exemption and additional interest subsidy for export credit, were not fully met.

As part of the package, the Reserve Bank of India will give a credit line of Rs 5,000 crore (Rs 50 billion) to Exim Bank, which in turn will lend to exporters who are finding it difficult to access credit from other financial institutions. Banks are shying away from lending to exporters as they fear payment default by overseas buyers. The government also restored the Duty Entitlement Passbook scheme rates to pre-November levels. This will enable exporters to claim back the duty paid on imports that are used to make export products.

"Overall, it seems that major concerns of exporters, which included enhanced DEPB rates and access to liquidity, have been take care of," said KT Chako, director of Indian Institute of Foreign Trade.

These rates were reduced on November 5 in the backdrop of a depreciating rupee. But with the Indian currency appreciating 4 per cent since November, the rates have been restored to levels prevalent before the cut, according to Planning Commission Deputy Chairman Montek Singh Ahluwalia.

Commenting on the package, A Sakthivel, president, Federation of Indian Export Organisations, said: "We find no serious consideration in the second package except extension of the DEPB scheme up to December 31, 2009."

Export lobby groups were demanding an additional 2 per cent interest rate subsidy on export credit, an income-tax holiday for five years and two years' moratorium on re-payment of term loans. None of these demands were met in the package.

An additional concern could be delay by state governments to reimburse state taxes to exporters. "This is because revenue collection in states has decreased and in such a backdrop, timely reimbursement of state-level duties is like an exception. Exporters have large amounts of money lying with state governments," said Chako, who earlier retired as the Director General of Foreign Trade.

Extended tenure

Moreover, the DEPB scheme was extended till December from May in order to provide predictability and stability to the scheme. This will help Indian exporters factor in the benefits while negotiating orders with overseas clients. Moreover, rates of another duty neutralisation scheme - duty drawback - will be enhanced with prospective effect from September 1, 2008.