Ministry moots sector-specific incentives for exporters

Stung by the steep decline in the export from sectors that have less import intensity but greater labour intensity, the Department of Commerce is seeking sector-specific relief measures for them. These sectors include plantation, marine products, garments, fruits and vegetables and handicrafts.

Highly-placed sources in the Government told Business Line here that the earlier relief measures announced in June and September 2007 were able to only partly meet the concerns of exporters reeling under the relentless rise of rupee value vis-a- vis the US dollar in which most of the export receipts are received.

Though measures such as modest increase in Duty Entitlement Pass Book Scheme, interest rate subvention of two percentage points per annum to all scheduled banks in respect of export credit to the specified categories of exporters in the small and medium enterprise sector and service tax exemptions for a few select services were announced, they did not counter the persistent appreciation of the rupee and its adverse impact on the margin of exporters, they said.

The sources revealed that in the case of tea and coffee exports, the decline during the first half of the current fiscal was 33.3 and 20.2 per cent as compared to the corresponding months of 2006-07, 19.4 per cent in the export of fruits and vegetables, 15.4 per cent in cashew exports, 10.5 per cent in marine products, 17.4 per cent in cotton exports, 12.1 per cent in garments and a whopping 56 per cent in handicrafts. They said that in 83 exporting units surveyed by the Department of Commerce the job loss till end-June 2007 was 10,500, which would shoot up to two lakh by end-March, 2008 and eight lakh by September 2008, if no requisite relief measure was forthcoming to arrest the decline in exports and consequent retrenchment of workforce.

The sources said that the Commerce & Industry Minister, Mr Kamal Nath’s June package remained largely unimplemented. The demands of exporters for exemption from service taxes remained unmet and the local levies reimbursement has not been addressed up till now, aggravating the exporters’ woes.

That is why the Commerce Ministry is seeking an across the board one per cent increase in DEPB rates and not like the selective way in which it was done in the last package, pre-shipment and post-shipment credit to be cut down to 6 per cent from the range of 9 to 11 per cent and further measures providing sector-specific succour to the worst hit exporters.

They further said that 100 per cent export-oriented units have not been compensated for rupee appreciation as they also source most of their inputs domestically and together with gem and jewellery segments, which need to be provided some relief, the Commerce Ministry is seeking an extension of income tax exemption under Sec 10-A and 10-B for one more year from 2009 to 2010 for these segments.

The sources clarified that the Finance Minister, Mr P. Chidambaram, would meet only the textile industry representatives on November 15 to sort out the industry’s problems particularly on working capital and technology upgradation fund scheme and not to discuss exporters’ problems in the light of continuing rupee appreciation.

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Allow 1 lakh tonne duty-free import of natural rubber

Kolkata, Nov 12 The All India Rubber Industries Association (AIRIA), concerned over both volatility in the prices of natural rubber and inadequate domestic availability of natural rubber, has sought duty-free import of one lakh tonnes of natural rubber for domestic production of rubber goods, as “49,800 tonnes of natural rubber as imported under DEEC licence are meant for export production and have no relevance to domestic demand”.

According to Mr M.F. Vohra, President of AIRIA, consumption of natural rubber outstripping its production, coupled with loss of production in the last few months, may lead to non-availability of natural rubber to the extent of one lakh tonnes. He felt this may lead to further spurt in prices.

Citing a recent study of the Rubber Research Institute of India, he said owing to Chikungunya affecting tappers and excessive Kerala rains making tapping difficult, some 50,000 tonnes of natural rubber was lost during the first five months of the current fiscal.

The Rubber Board, according to AIRIA, has estimated the growth in natural rubber production during 2007-08 at 3.6 per cent against a consumption growth of 4 per cent. In 2009, Mr Vohra said, consumption was expected to grow by 4.8 per cent, while production growth is expected to remain at 3.6 per cent.

He said in order to overcome this problem, the rubber goods industry needs to depend on imports, which again become prohibitive with the 20 per cent import duty levied on natural rubber and 70 per cent on Rubber Latex. According to Mr Vohra, ever since futures trading in natural rubber commenced (since 2003-04), prices of the commodity have steadily gone up.

“While the rubber industry has no qualms about natural rubber prices being determined by market forces in an open market economy, the industry is averse to manipulation in prices as indulged in by a section of traders owing to natural rubber being included in the commodity list of futures trading.”

He said response to the representation for removal of natural rubber from the commodity list of futures trading was still awaited.

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Textile industry on campaign mode to highlight grievances

Chennai, Nov. 5 A decline in exports, oversupply in domestic market, lack of yarn movement and closing down of garment units have forced various bodies in the textiles industry to come together and air their grievances in public.

“The textiles sector is in a terrible mess and we have gone public to draw everyone’s attention to our problems,” said sources in the spinning sector.

Representative bodies such as the Apparel Export Promotion Council; the Cotton Textiles Export Promotion Council; the Synthetic and Rayon Textiles Export Promotion Council; the Confederation of Indian Textiles Industries; Powerloom Development and Export Promotion Council; Rajasthan Textiles Mills Association; the Mill Owners Association; Tirupur Exporters Association; and the Northern Indian Textiles Mills’ Association on Monday came out with a huge advertisements in various dailies highlighting their plight. The advertisement also pointed, how in contrast, the Chinese textiles sector was enjoying an advantage in the global market.

Sector’s woes

The advertisement showed the Chinese enjoying from a favourable yuan-dollar ratio, low cost and high quality power supply, lower transaction costs and world class infrastructure. In contrast, the Indian sector was seen suffering from high capital costs, non-funded State levies, infrastructure disability costs, cross-subsidisation of power, delay in technology upgradation fund, and the rising rupee.

“Basically, we want the Centre to fulfil four of our demands. At least, three of the demands can be met immediately,” the sources said. “The Centre can take immediate steps to refund six per cent f.o.b value collected as duties by State Governments on exports. This is an obligation under the World Trade Organisation because it is like taxing our buyers abroad for purchasing our goods,” the sources said.

“Again, the Centre will have to stop asking the industries to pay for the power supplied to farmers and domestic consumers by charging us higher rates. We are having to pay for the transmission and distribution losses arising out of theft and inefficient supply,” they pointed out.

Stabilising rupee

“Packaging credit must be lowered to at least six per cent. The basic prime lending credit for packaging is 14 per cent in our country.

The Centre has ordered a 4.5 per cent cut. Some get credit at 9.5 per cent and some still less. But even if the credit is lowered to six per cent, our rate will be the highest,” the sources said.

“The last demand is stabilisation of the rupee-dollar parity. That will take time and the Government can do nothing about it. Therefore, we are willing to wait on that count,” they said.

According to the sources, textile exports in April declined by 18.23 per cent compared with the figures in April 2006. “That will mean a loss of Rs 1,031 crore. A study by the Research and Information System for Developing Countries said 35 jobs are created for every Rs 1 crore-worth goods export. That means, 35,000 jobs would have been lost in April alone,” they said, adding: “If the trend continues, by the end of the fiscal, 4-5 lakh jobs will be lost.”

Lack of urgency

The primary reason for the representative bodies to publish the advertisement was because they felt that they “do not find the sense of urgency required in the Government”.

“The Centre is not alert to the situation. We need to administer medicine to the sick and not the dead,” they added.

The textile sector provides employment to 3.5 crore people, while 4.7 crore farmers also depend on its fortunes.

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AEPC seeks sops to tide over value loss in exports

Coimbatore, Nov 5 The Apparel Export Promotion Council (AEPC) has sought sops from the Centre for a temporary period to offset value losses suffered by the garment sector due to the appreciating rupee.

The Council, which has presented a charter of demands spelling out the relief package to the Government, favoured refund of state-level taxes that total up to six per cent of their cost through the drawback route, reducing the rate of interest for packing credit and a dual currency rate (with a higher rate for exports).
Relax labour laws.

The AEPC is also pressing the Government for refund of service tax paid by the exporters and relaxation in labour laws thereby allowing contract labour by the garment industries. These reliefs could be allowed for a limited period to enable the garment sector get over the current difficulties it faces from the declining dollar value.

The AEPC Chairman, Mr Vijay Agarwal, in a statement maintained that even if the Government conceded to all its demands, it would part with only the uncollected taxes amounting to between Rs 1,800 crore and Rs 2,000 crore and the Government would not actually encounter any cash outflow.

Highlighting the current crisis facing the garment exporters, Mr Agarwal pointed out that on top of the export trade losses seen in the past six months when the dollar slid against the rupee from the Rs 46-Rs 47 band to Rs 39.50, the international buyers were refusing to enter into any other currency contract, including the euro, and this had added to the exporters’ woes.

The negative impact on the trade could be already seen from the garment export data of the Ministry of Textiles.

The export of readymade garments had declined almost 17 per cent from $2.4 billion to $2 billion in April-June 2007. The knitted garments slipped by 12 per cent (from $906 million to $800 million), the export of woven garments fell sharply by 17 per cent (from $1.5 billion to $1.25 billion).

The AEPC Chairman said the silver lining had been the decision of the Central government to extend the technology upgradation fund scheme up to 2012 and this would encourage new investment in the textiles and apparel sector. The garment manufacturers would stand to get 10 per cent capital subsidy in addition to 5 per cent interest subsidy for the investment on machinery under the TUFS.

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Bring passenger cars under DEPB: Industry

Alarmed by the appreciation of the rupee and its impact on export competitiveness, automobile manufacturers have sought Government support to be made eligible for Duty Entitlement Pass Book (DEPB) benefits on passenger car exports and asked for modifications in export promotion schemes.

The auto component manufacturers, which are also bearing the brunt, have asked for tax breaks through reintroduction of 80 HHC code provision. Their association is seeking an enhancement of DEPB rates by 3-4 per cent as well.

In a recent meeting with the Directorate-General of Foreign Trade, the Society of Indian Automobile Manufacturers (SIAM) has asked that automobiles be included in export promotional schemes such as ‘focus product’ and ‘focus market’.

DEPB rate

“There is no DEPB rate on passenger cars as in the case of commercial vehicles and two-wheelers. So, we have asked the Government to make suitable amendment so that passenger vehicles are included in it,” said a senior SIAM official. “Indian automobile manufacturers are incurring huge costs on developing new export markets like Russia and South Africa that are not a part of the focus market scheme, for which also we have made a proposal to the Government,” the official added.

The focus market scheme provides around 2.5 per cent credit to the free-on-board value of exports of products in select countries, as against the focus product scheme that allows credit on export of certain products.

With supply contracts already on a long-term basis in the case of automobiles, it also rules out the possibility of renegotiating for exports, cited the official. When asked to comment, the SIAM Director General, Mr Dilip Chenoy said, “We have made a series of requests to improve the overall automobile exports. This is also in line with the Automotive Mission Plan target to boost export competitiveness.”
Low growth

Among all categories, including two-wheelers and commercial vehicles, the passenger vehicles market has witnessed the lowest pace of export growth with a marginal increase of 1.48 per cent in the first half of the current fiscal.

According to industry estimates, the margins on exports are already less and with the current rupee appreciation companies are incurring substantial losses. Hyundai, the largest exporter of passenger cars, is estimating a loss of Rs 169 crore this year.

While the going is already tough for the auto industry on the domestic front on account of high interest rates and a consequent slowdown in automobile sales, in the absence of any Government support, India would lose out on exports as well, says the industry body.

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Pulses market turning potentially explosive

Rising global grain prices, weakening dollar and firmer ocean freight rates have combined to make pulses imports more expensive. The landed cost is today about Rs 4,000 a tonne higher than it was a few months ago. For instance, for green and yellow peas, importers pay over $450 a tonne, that is at least $100 a tonne more than they did say three months ago. The firming rupee means that Indian importers pay slightly less in rupee terms against dollar contracts; but the overall adverse effect of rising grain prices on the Indian pulses market is clearly visible.

Domestic prices of green and yellow peas are currently at over Rs 18,000 a tonne, up from close to Rs 15,000 a tonne three months ago. Price rise is seen in other pulses too. The threat of a further rise in pulses prices is real, as the demand-supply fundamentals of the pulses market are getting tighter by the day.

Risk premium

Worse, overseas suppliers dealing with India build into their price what is called a ‘risk premium’. There are risks associated with supply of pulses to India; and one of the major risks is the risk of rejection at the point of entry on plant health grounds. Stem and bulb nematode is one of them. Currently, Indian phyto-sanitary regulation requires that overseas suppliers fumigate the consignment with methyl bromide. But this fumigant is hardly used in developed countries as it has been phased out.

This condition exposes the overseas supplier to the risk of rejection of cargo on arrival at the Indian port. Exporters say the extant quarantine conditions are too onerous for them to be able to do business with India freely. It is also reported that other importing countries in Asia – China, Pakistan, Bangladesh – do not impose such stringent conditions as India does. One must, however, hasten to add, as an agrarian economy and world’s largest producer (13-14 million tonnes), consumer and importer (2.0-2.5 million tonnes) of pulses, India has much at stake as far as agriculture is concerned.

Entry of exotic pests and diseases through the import route can potentially ruin the already fragile Indian agriculture. At the same time, widening demand-production mismatch in pulses has pushed market prices up. Poor consumers are the worst hit. Pulses are the cheapest vegetable protein for poor consumers; yet, per capita availability of pulses has steadily declined over the years.

Govt dilemma

The Government is caught in a dilemma. Import volumes are expanding and imports are an absolute necessity to contain price rise. But the risk of nematode infestation is real too and needs to be managed scientifically, without jeopardizing domestic farming. At the same time, the market would be unwilling to wait. Overseas suppliers continue to scout for other import-friendly markets.

Some practical solution would be in order. India is currently undertaking a pest risk analysis (PRA) for stem and bulb nematode. The exercise is likely to be completed in the coming months. However, until such time the PRA has been completed and appropriate measures to deal with the identified risks have been developed and implemented, India’s pulses imports remain at risk. An interim measure, according to grain sector experts, is that while India should continue the current practice of fumigating imported pulses on arrival in the country, Indian plant quarantine authorities can insist on certificate of test and clearance at the port of loading itself from the supplier country official agency.

For instance, Canada, the largest supplier of pulses to India, has an official agency known as Canada Food Inspection Agency (CFIA), which can conduct tests on basis of pre-agreed sampling and testing methods to certify the safety of consignments.

In any case, on arrival, the Indian Government can make random checks to ensure that imports conform to domestic regulations. Such a move, market participants assert, will considerably reduce the risk faced by overseas suppliers and would bring down the risk premium Indian importers are currently paying.

Quarantine issue

The quarantine issue deserves the most urgent attention for another reason. There is a strong possibility that pulses planting in the upcoming rabi season (summer harvest) would take a hit. Growers are likely to plant more of oilseeds and grains (other than pulses). Minimum support price for wheat has been hiked to a record level of Rs 1,000 a quintal (about $250 a tonne).Worse, in Punjab, Haryana, Uttar Pradesh and parts of Madhya Pradesh and Rajasthan, the soil moisture conditions are less than satisfactory. Farmers are unlikely to take a chance with pulses, but are more likely to favour wheat and rapeseed/mustard.

Output and yield

Output and yield will depend on the quantum of winter rains. Into 2008, pulses prices have a strong upside risk; and the market is turning potentially explosive for reasons both domestic and international.

Major origins such as the US, Canada, Australia may harvest less. If New Delhi wants pulses prices to stay under control, the only way is to augment supplies through imports, and by adopting clearance procedures that are practical and effective without hampering smooth flow of goods.

It is also necessary to review the role of Government parastatals in pulses import. Brave statements of intention to import large quantities do not help any one but the overseas suppliers to further jack up prices. State agencies enjoy a 15 per cent subsidy on pulses import.

This concession is not only unjustified but also distorts the market. In importing pulses and selling in the open market, State agencies discharge a commercial function like any other private trader. There is no justification to treat them preferentially by granting ad hoc concession.

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H1 spices exports top Rs 2,100 crore

Kochi, Nov. 5 Spices exports during the first half of the current fiscal have shown a sharp rise with the shipments touching 2,19,640 tonnes, valued Rs 2,100.34 crore ($514.10 million).

Compared to the export performance of 1,80,500 tonnes valued Rs 1,627.52 crore ($353.90 million) in the same period last fiscal, the achievement during the year is higher by 22 per cent in quantity, 45 per cent in dollar terms, and 29 per cent in rupee terms and of value.

As against the target of 3,80,000 tonnes valued at Rs 3,600 crore ($875 million) set for the year, 58 per cent of quantity and 59 per cent of value have been realised in the first six months, a Spices Board release said.

Spices like pepper, cardamom (large), chilli, coriander, fennel, fenugreek and other miscellaneous spices performed better than last year. Among the value-added spices, curry powder, spice oils and oleoresins and mint products have done better compared to last year.

Shipments of some of the items like cardamom (small), ginger, cumin, celery, garlic and vanilla fell short of last year’s performance.
Pepper, chilli trend

During April-September 2007, the country exported 17,000 tonnes of pepper valued Rs 245.43 crore, which is higher by 37 per cent in quantity and 126 per cent in value compared to last year’s 12,450 tonnes and Rs 108.66 crore.

The f.o.b unit value increased to Rs 144.37 a kg from Rs 87.28 a kg last year. During the period, Indian pepper became more competitive in the international market compared with other major producing countries such as Vietnam, Indonesia and Malaysia.

During the first half of this financial year, 1-lakh tonnes of chilli valued Rs 549.25 crore were shipped against 58,285 tonnes valued at Rs 285.38 crore last year. The demand from traditional buyers such as Malaysia, Sri Lanka, Indonesia and Bangladesh are on the rise. The export of chilli accounts for 46 per cent in terms of quantity and 26 per cent in terms of value of the total export of spices from India.

Currently, India is the main source of red chilli for the international market. After the lean production last year, the new Chinese crop will reach the market only by October. Pakistan and the other producers may require a large portion of their September crops for internal consumption

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