YEAR END REVIEW OF DEPARTMENT OF COMMERCE

INDIA’S EXPORTS INCREASE FROM $ 63.8 BILLION IN 2003-04 TO $ 119.3 BILLION IN 2008-09 (APR-NOV) – SEZs GENERATE EMPLOYMENT

YEAR END REVIEW OF DEPARTMENT OF COMMERCE

India’s merchandise exports increased from US $ 63.8 billion in 2003-04 to US $ 162.9 billion in 2007-08 recording average annual growth rate of 26.4% during the last four years. Steps taken by the Government to arrest deceleration of export -- (1) Excise duty reduced across the board by 4% for all products except petroleum products and those products where current rate was less than 4%; (2) Interest subvention of 2% has been provided till 31.3.2009, to the following labour intensive sectors for exports: Textiles (including Handlooms), Handicrafts, Leather, Gems & Jewellery, Marine Products and SMEs; (3) Additional funds of Rs.350 crore provided for export incentive Schemes; (4) All items of handicrafts included in Vishesh Krishi and Gram Udyog Yojana; (5) Back-up guarantee to ECGC for up to Rs.350 crore; (6) Rs1,100 crore provided to ensure full refund of claims of CST/Terminal Excise duty/ Duty drawback on deemed exports; (7) Additional funds of Rs.1400 crore provided for textile sector to clear the backlog claims of TUF; (8) Export duty on iron ore fines eliminated, and for lumps, reduced to 5%; (9) Import duty on naphtha for power sector eliminated; (10) Some pending issues relating to Service Tax refund on exports – resolved.

Special Economic Zones

SEZs have created employment for large number of unemployed rural youth. Even in the services sector, 12.5 million sq meters space is expected in the IT/ITES SEZs which as per the NASSCOM standards translates into 12.5 lakh jobs. It is, therefore, expected that establishment of SEZs would lead to fast growth of labour intensive manufacturing and services in the country. The total investment in the SEZs, as on 30th September 2008, were Rs.93507.23 crore and the total employment generated so far to 3,62,650 persons.

Out of the 531 formal approvals given till date, 174 approvals are for sector specific and multi product SEZs for manufacture of Textiles & Apparels, Leather Footwear, Automobile components, Engineering etc. which would involve labour intensive manufacturing. Exports from SEZs during the year 2007-08 was to the tune of Rs.66,638 crore with a growth of 92% over 2006-07 (overall growth of exports of 381% over past four years (2003-04). The export projection for 2008-09 is Rs.1, 25,950 crore.

Gems & Jewellery

During the year 2007-08, exports in gems & Jewellery sector were worth US $ 19,657.36 million dollars and registered growth of 23.13% as compared to the year 2006-07. During the period April-July of the current fiscal exports worth US $ 6296.14 million were effected as against US $ 6141.92 million during the corresponding period previous year.

Marine Products

Marine Products Export Development Authority had initiated following measures to sustain the export of marine products during the current year: 1. Launched a comprehensive programme to tap deep sea resources of Tuna and finalised an action plan for development of tuna fishery in the Andamans. 2. Increased thrust on diversification of culture practices and launched a new scheme for providing financial assistance for value addition. 3. Introduced for the first time in the world Organic fresh water shrimp in the international market. 4. Promoted ornamental fish breeding for export. 5. Took steps to set up six more screening laboratories in Andhra Pradesh to improve the quality of shrimp exported. 6. Undertook R&D activities for new aquaculture technologies / innovative methods for increasing the production of fin/shell fish varieties. 7. Taken steps to introduce a brand promotion scheme to promote the image of Indian Seafoods at abroad.

Anti-dumping Investigations during 2008

During the year 2008, the Directorate General of Anti Dumping has so far initiated 18 fresh anti-dumping investigations (till 8.12.2008). The products involved are Cable Ties, All Fully Drawn or Fully Oriented Yarn/Spin Draw Yarn/Flat Yarn of Polyester, Plain Medium Density Fibre Board, Power Steering Gear System, Thyionyl Chloride, Plastic Processing Machinery, Cathode ray Television Picture Tube – III, Nylon Tyre Cord Fabrics, Flax Fabrics, Ceramic tiles, Tyres Curing Presses, Radial Tyres, Pencillin – G, Phosphoric Acid, Diethyl Thio Phosphoryl Chloride, Cold Rolled Products of Stainless Steel, Hot Rolled Steel Products and Axle Beam and Steering Knuckles. The countries involved in these investigations are China PR, Thailand, Vietnam, Malaysia, New Zealand, Sri Lanka, European Union, Indonesia, Belarus, Hong Kong, Korea RP, Japan, South Africa, Taiwan, USA, Iran, Kazakhstan, Saudi Arabia, Russia, Romania, Turkey and Ukraine.

Performance of Plantation Sector

COFFEE – The Government of India has approved the Development Support Scheme for coffee sector with a total financial outlay of Rs.310 crore during the month of March 2008. An area of 47776 hectares has been brought under plantation from January to November 2008. A new scheme on Export Promotion of Coffee and the scheme on Support for Coffee Processing have been approved by the Government of India with a total financial outlay of Rs.45 crore on April 10, 2008. The total export for the period from January to November 2008 was 2,08,023 tonnes earning a foreign exchange of Rs.2,271.81 crore against 2,04,538 tonnes earning a foreign exchange of Rs.1,773.50 crore during the same period last year.

RUBBER – India is the fourth largest producer of rubber with a share of 8.3% in the world production. The rubber sector accounts for 93% of the production and 89% of the area with an average holding size of 0.5 hectare. Natural rubber export and import is expected to reach 72,000 tonnes and 80,000 tonnes respectively in 2008. The Rubber Training Centre received ISO: 2000 certificate in June 2008.

SPICES – Indian spices industry recorded an export of 4,44,250 tonnes worth over US $ 1 billion during the year 2007- 2008. It marked a quantum leap of 19 per cent in volume and 24 per cent in rupee value. Mumbai is the major hub for export of spices and has alone accounted for 39% in volume of the total spice exports during the last financial year.

TOBACCO – India earned a foreign exchange of Rs.2,022.78 crore and Rs.10,271.55 crore as excise revenue in the year 2007- 2008. The exports of tobacco and tobacco products during 2007- 2008 were valued at Rs.2022.78 crore. During April-October 2008, exports of tobacco and tobacco products were valued at Rs.1952.43 crore. During April-October 2008, unmanufactured tobacco exports were valued at Rs.1623.10 crore and exports of tobacco products were valued at Rs.329.33 crore. Going by the current trend exports of tobacco and tobacco products are expected to cross US $ 600 million during 2008- 2009.

Prospects of the Doha Round

India continues to believe in strengthening the multilateral trade rules of the WTO. The full liberalisation through the WTO secures the economic and commercial gains necessary in the goods and services sectors and modes of supply of interest to developing countries. India has reiterated the need for a serious discussion on the expectations of WTO Members regarding other issues. The developing countries want to have progress in some of these issues such as the TRIPS-CBD issue. The WTO Ministers will raise issues that they consider important and it would therefore be prudent to prepare for this so that the discussions in the Ministerial Conference can be held in a constructive environment and lead us to a successful conclusion.
Further, progress needs to be made in other areas of negotiations as well, that are of great interest to the developing countries. Our focus is on the bankable commitments from our major trading partners in areas where we have relative strengths and which would provide certainty and value to trade in Services. India has made it known that without bankable commitments from the major developed countries in Services, it may be difficult for India to agree to the modalities on Agriculture and NAMA. India needs to have clear information on the important elements which are required for completion of Services’ negotiations too.

India has been engaging constructively and actively with other fellow Member countries of the WTO towards this end. For India, it is important that the Doha Round negotiations are brought to a successful conclusion. Such a conclusion can only be possible if we are faithful to the mandate and the outcome reflects a clear balance between market opening and the development needs of the majority of the membership. India is ready to show the necessary flexibility to achieve such an outcome but the onus for movement lies largely with the developed countries.

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Rs 2,000-cr boost fails to cheer exporters

NEW DELHI: The government on Sunday announced a booster package of Rs 2,000 crore for exporters faced with falling orders from Western markets
and a severe credit shortage.

The incentives, part of the overall demand stimulus package announced by Planning Commission deputy chairman Montek Singh Ahluwalia, include interest rate subvention for labour-intensive sectors, additional allocation for export incentive schemes, government back-up guarantee for exports, additional funds for full refund of terminal excise duty and CST, export duty and refund of service tax on foreign agent commissions of up to 10% of value of exports.

The government has also decided to eliminate export duty on iron ore fines and reduce export duty on lumps to 5%.

While exporters are disappointed that the package is focusing on just a handful of sectors, the government has said more steps could be taken that would benefit exporters from other sectors as the committee of secretaries will keep meeting to assess the situation. “We will consider extending interest subvention to sectors beyond the ones announced today (Sunday). The committee of secretaries, which will now be headed by the Cabinet secretary, will continue to meet to assess the situation on a regular basis,” commerce secretary GK Pillai told the reporter.

But exporters feel steps need to be taken urgently. “The recession is even deeper than one thought and recovery is likely to take longer. The government should supplement the endeavour of RBI expeditiously and announce interest subvention scheme for exports along with other additional measures immediately,” said Fieo president Ganesh Kumar Gupta.

Delhi Exporters Association (DEA) president SP Agarwal pointed out that over 10,000 units had closed down and there was urgent need for more action. “We do not want incentives in a piece-meal basis. We expect a sound package from the government which should include income tax exemption for exporters,” Mr Agarwal said.

According to the package announced on Sunday, pre- and post-shipment export credit for five labour-intensive sectors, including textiles (which incorporates handlooms, carpets and handicrafts), leather, gems & jewellery, marine products and the small and medium enterprise (SME) will be given an interest subvention (or discount) of 2% up to March 31 2009 subject to minimum rate of interest of 7% per year.

“This would cost the exchequer about Rs 400 crore,” Mr Pillai said.

An additional allocation for export incentive schemes of Rs 350 crore has been made which will be distributed to schemes like the Vishesh Krishi and Gram Udyog Yojana and the Market Development Assistance. The handicrafts sector, which employs many, has been included in the VKGUY scheme which will enable exporters to get import duty reimbursements of up to 5% of the total value of exports. It will cost the government about Rs 150 crore annually.

With the global financial meltdown increasing the risk of defaults, the government has decided to give back-up guarantee to the export credit guarantee corporation to the extent of Rs 350 crore.

Another significant decision which will improve fund availability is allocation of Rs 1,100 crore to ensure full refund of terminal excise duty and central sales tax. Exporters will also be allowed refund of service tax on foreign agent commissions of up to 10% FOB value of exports.

They will also be allowed refund of service tax on output services while availing of benefits under the duty drawback scheme. This is significant as a large number of exporters were not able to get service tax refunds because of the clause. “We had to try hard to convince the finance ministry that drawback does not include service tax,” Mr Pillai said.

To encourage exports, the government has eliminated export duty on iron ore fines and reduced duty on lumps to 5%.

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Revision of Excise and Customs Duty Rates and Service Tax Refund to exporters

To provide a fiscal stimulus to the economy through stimulation of demand and relief to the manufacturing sector, Government has carried out certain changes in Excise and Customs duty rates. Some changes have also been made in respect of Service tax refund scheme for exporters. The details of these changes are as under:-

I.Central Excise

The three major ad valorem rates of Central Excise duty viz. 14%, 12% and 8% applicable to non-petroleum products have been reduced by 4 percentage points each. The revised rates will be 10%, 8% and 4% respectively.

Cars, other than small cars, attract composite rates – that are a combination of specific and ad valorem rates. The rates applicable hitherto were ‘24% + Rs.15,000/-` per unit for cars of engine capacity 1500 cc to 1999 cc and ‘24% + Rs.20,000/-` per unit for cars of engine capacity of 2000 cc or more. The ad valorem component of these rates has been reduced from 24% to 20%.

In the case of cement, which attracts either the ad valorem rate of 12% or specific rates (Rs./metric tonne) depending upon the retail sale price, the specific rates have also been reduced in the same proportion as the ad valorem rate. Further, the concessional rates for cement produced by mini-cement plants have also been reduced proportionately. Bulk cement would now be chargeable to either 10% ad valorem or Rs.280/- per tonne, whichever is higher.

The rate of duty on cotton textiles and textile articles has been reduced from 4% to Nil. No change has been made in the excise duty rates on petroleum products, specific rated items and tobacco products.

Notification No.58/2008-Central Excise and Notification No.59/2008-Central Excise, both dated 07.12.2008 have been issued in this regard.

II. Customs duty

To provide relief to the power sector, naphtha imported for generation of electric energy has been fully exempted from basic customs duty. This exemption will be available upto 31.03.2009. Notification No.128/2008-Customs dated 07.12.2008 has been issued in this regard

III. Export duty on iron ores

The export duty of 8% on iron ore fines has been withdrawn while the rate of export duty on iron ore lumps has been reduced from 15% to 5% ad valorem.

Notification No.129/2008-Customs, and Notification No.130/2008-Customs both dated 07.12.2008 were issued in this regard here today.

IV. Service Tax

Notification No.41/2007-Service Tax provides for refund of service tax paid by exporters on 18 taxable services attributable to export of goods. The benefit of such refund has now been extended to services provided by a clearing and forwarding agent to exporters also. In addition, the threshold limit of refund of service tax paid by exporters on foreign commission agent services has been enhanced from 2% of FOB value to 10% of FOB value of export goods. Further, drawback benefit can now be availed of simultaneously with refund of service tax paid in respect of exports. Notification No.33/2008-Service Tax, dated 07.12.2008, amending the aforesaid notification No.41/2007-Service Tax was issued in this regard here today.

V. All the aforesaid changes are effective from 7.12.2008.

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Government Announces Measures for stimulating the Economy

The Government has been concerned about the impact of the global financial crisis on the Indian economy and a number of steps have been taken to deal with this problem.

The first priority was to re-assure the people of the stability of the financial system in general and of the safety of bank deposits in particular. To this end, steps were taken to infuse liquidity into the banking system and also to address problems being faced by various non-bank financing companies. These steps have ensured that the financial system is functioning effectively without suffering the kind of loss of confidence experienced in the industrialised world.

Having assured stability of the system, the Government has focussed its attention on countering the impact of the global recession on India's economic growth. On the monetary side, the RBI has sought to pump sufficient liquidity into the banking system to enable bank credit to meet the expanded requirements of the economy keeping in mind the contraction in credit from non-bank sources. Banks have been provided adequate liquidity through a series of reductions in the CRR and additional flexibility in meeting the SLR requirement. Interest rate reductions have also been signalled by reductions in the repo and reverse repo rates, the most recent of which was announced on Saturday when both the repo rate and the reverse repo rate were cut by 100 basis points. Access to external commercial borrowings has also been liberalised so that borrowers capable of accessing funds from abroad are allowed to do so. The banks are being encouraged to counter what might otherwise become self-fulfilling negative expectations by enhanced lending to support economic activity.

These measures in the area of money and credit are being supplemented by fiscal measures designed to stimulate the economy. In recognition of the need for a fiscal stimulus, the government had consciously allowed the fiscal deficit to expand beyond the originally targeted level because of the loan waivers, issue of oil and fertilizer bonds and higher levels of food subsidy. In addition, the following steps are being taken:

1. Plan Expenditure:

In order to provide a contra-cyclical stimulus via plan expenditure, the Government has decided to seek authorisation for additional plan expenditure of upto Rs 20,000 crore in the current year. In addition, steps are being taken to ensure full utilisation of funds already provided, so that the pace of expenditure is maintained. The total spending programme in the balance four months of the current fiscal year, taking plan and non-plan expenditure together is expected to be Rs.300,000 crore.

The economy will continue to need stimulus in 2009-2010 also and this can be achieved by ensuring a substantial increase in plan expenditure as part of the budget for next year.

2. Reduction in Cenvat:

As an immediate measure to encourage additional spending, an across-the-board cut of 4% in the ad valorem Cenvat rate will be effected for the balance part of the current financial year on all products other than petroleum and those where the current rate is less than 4%.

3. Measures to Support Exports

i) Pre and post-shipment export credit for labour intensive exports, i.e., textiles (including handlooms, carpets and handicrafts), leather, gems & jewellery, marine products and SME sector is being made more attractive by providing an interest subvention of 2 percent upto 31/3/2009 subject to minimum rate of interest of 7 percent per annum

ii) Additional funds of Rs.1100 crore will be provided to ensure full refund of Terminal Excise duty/CST.

iii) An additional allocation for export incentive schemes of Rs.350 crore will be made.

iv) Government back-up guarantee will be made available to ECGC to the extent of Rs.350 crore to enable it to provide guarantees for exports to difficult markets/products.

v) Exporters will be allowed refund of service tax on foreign agent commissions of upto 10 percent of FOB value of exports. They will also be allowed refund of service tax on output services while availing of benefits under Duty Drawback Scheme.

4. Housing

Housing is a potentially very important source of employment and demand for critical sectors and there is a large unmet need for housing in the country, especially for middle and low income groups. The Reserve Bank has announced that it will shortly put in place a refinance facility of Rs.4000 crore for the National Housing Bank. In addition, one of the areas where plan expenditure can be increased relatively easily is the Indira Awas Yojana. As a further measure of support for this sector public sector banks will shortly announce a package for borrowers of home loans in two categories: (1) upto Rs.5 lakhs and (2) Rs 5 lakh-Rs 20 lakh. This sector will be kept under a close watch and additional measures would be taken as necessary to promote an accelerated growth trajectory.

5. MSME Sector

The Government attaches the highest priority to supporting the medium, small and micro enterprises (MSMEs) sector which is critical for employment generation. To facilitate the flow of credit to MSMEs, RBI has announced a refinance facility of Rs.7000 crore for SIDBI which will be available to support incremental lending, either directly to MSMEs or indirectly via banks, NBFCs and SFCs. In addition, the following steps are being taken.

(a) To boost collateral free lending, the current guarantee cover under Credit Guarantee Scheme for Micro and Small enterprises on loans will be extended from Rs.50 lakh to Rs.1 crore with guarantee cover of 50 percent.

(b) The lock in period for loans covered under the existing credit guarantee scheme will be reduced from 24 to 18 months, to encourage banks to cover more loans under the guarantee scheme.

(c) Government will issue an advisory to Central Public Sector Enterprises and request State Public Sector Enterprises to ensure prompt payment of bills of MSMEs. Easing of credit conditions generally should help PSUs to make such payments on schedule.

6. Textiles

(a) An additional allocation of Rs.1400 crore will be made to clear the entire backlog in TUF Scheme.

(b) All items of handicrafts will be included under 'Vishesh Krishi & Gram Udyog Yojana'.

7. Infrastructure Financing

A large number of infrastructure projects are now being cleared for implementation in the Public Private Partnership mode. These projects may experience difficulty in reaching financial closure given the current uncertainties in the financial world. In order to support financing of such projects, Government has decided to authorise the India Infrastructure Finance Company Limited (IIFCL) to raise Rs.10,000 crore through tax-free bonds by 31/3/2009. These funds will be used by IIFCL to refinance bank lending of longer maturity to eligible infrastructure projects, particularly in highways and port sectors. In this way it is expected that IIFCL resources used for refinance can leverage bank financing of double the amount. Depending on need, IIFCL will be permitted to raise further resources by issue of such bonds. In particular, these initiatives will support a PPP programme of Rs.100,000 crore in the highways sector.

8. Others

(a) Government departments will be allowed to take up replacement of government vehicles within the allowed budget, in relaxation of extant economy instructions.

(b) Import Duty on Naphtha for use in the power sector will be eliminated.

(c) Export duty on iron ore fines will be eliminated and on lumps will be reduced to 5%.

The Government is keeping a close watch on the evolving economic situation and will not hesitate to take any additional steps that may be needed to counter recessionary trends and maintain the pace of economic activity.

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Exporters may get back benefits available earlier

The big export relief measures for which the besieged exporters are looking forward to on Saturday would largely comprise restoration of benefits already bestowed on exporters that were withdrawn in recent period such as interest subvention, due payment of arrears of terminal excise duty (TED)/Central Sales Tax (CST), services tax and higher drawback and DEPB (duty entitlement pass book) rates.

Highly-placed sources said that the export relief measures to be announced tomorrow would broadly cover these aspects so that exporters, reeling under disconcerting drop in overseas orders and high transaction cost, would be left with some flow of funds to salvage the situation.

They said that not a single service tax to exporters has been refunded by way of notification so far even though the intent has been declared widely.
Policy rates

The sources said that as the RBI is all set to announce on Saturday some cuts in policy rates with banks being asked to push down interest cost, exporters must perforce also to hold on to existing markets for which they need “a little bit of stimulus”. The sources said that once a lower policy rate is unveiled by the central bank to be followed by lower interest rate by banks, exporters would also be given an interest subvention on export finance, especially those in the labour-intensive export segment such as textiles, gems and jewellery, marine products, leather of minus 2 per cent that would cost Rs 250 crore in the next four months.

The restoration of drawback and DEPB rates from the recent cuts would cost another Rs 250 crore in the next couple of months, while there would be refund of services tax on output services and foreign exchange commission to benefit the exporters.

They said the arrears of TED/CST running to Rs 600 crore would be settled now, while the Export Credit Guarantee Corporation (ECGC) would be given a backup of Rs 350 crore to extend risk coverage to exporters. The sources said that the Commerce Ministry is worried that Indian exporters have to contend with every other country providing at least one per cent tax rebate to get export orders in a shrinking market and the least the government could do is to help them realise some of the benefits guaranteed to them under the statute.
Ministry perspective

Asked how the Commerce Ministry views the prospects for exports after the relief measures would be put in place tomorrow, the sources conceded that the department has drawn two scenarios—the most optimistic being that overall exports during the current fiscal would register a 10 per cent growth in dollar terms and the least optimistic being that there would be a decline of 4 per cent in export growth of $162 billion the country compassed during 2007-08. They said the exporters have orders only up to January next and the subsequent months would be difficult to sail through.

The sources said that a survey of 121 companies across the country and across industry revealed that job losses estimated was 65,000 in the last three m months and the prediction is that the aggregate job losses in industry due to declining exports and declining demand would be 12 lakh this year.

The sources said that even the Special Economic Zones (SEZs) have been facing difficulty in exports and in places like electronic SEZ at Santa Cruz, the zone authority has informed the officials in the Commerce Ministry that 25,000 less number of casual employees passes do not get picked up. “This is at a time when casualisation and contractualisation of labour has been the most important labour reform imperceptibly supervening in India between 1991 and 2008”, the sources quipped.

To a specific query about any move to diversify markets for exporters, the sources said that India’s exports to the United States and the European Union (EU) account for only 35 to 38 per cent with the remainder going to Africa, East Asia and Latin American countries. “That is why the Ministry has sought higher assistance for focus market and focus market schemes to help exporters send out delegation and mount trade fairs for buyer-seller interface,” the sources added.

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Global meltdown wipes out Rs 1,792-cr export orders

NEW DELHI: A government survey of the export sector has thrown up a grim picture of severe job losses and order cancellations. Senior government officials have warned of many export units closing down and thousands of jobs being lost if a bailout of exporters is not launched soon.

A survey of 125 companies by the commerce department has revealed that the companies lost export orders worth Rs 1,792 crore during August-October 2008 and were forced to lay off 65,000 workers.

The commerce department had carried out the survey to find the extent of hit exporting units had taken due to the global financial meltdown and the resulting credit squeeze and demand slowdown.

A senior official in the commerce department said that if steps to bail out exporters are not taken now, “not hundreds but thousands of units will close down within a few months”.

The exporters are suffering on many counts. While there is lower demand from foreign buyers due to recession in the Western economies, banks in India are also not willing to honour letters of credit. This is making it difficult for exporters to fulfil whatever little orders they have. In October 2008, exports growth entered the negative territory for the first time in five years, registering a fall of 12% from a year ago.

The official pointed out that the problem in the country was not of inadequate liquidity but unwillingness of banks to give loans to exporters. “We were amazed to find out that banks were actually asking some exporters not to take additional orders,” the official said.

The committee of secretaries working on the incentive package for the industry has been discussing a mechanism to ensure there is no slowdown in lending. According to the plan, to be executed by the financial services department in the finance ministry in cooperation with banks, loans made by various branches of banks will be noted and bank managers asked to explain the reason in case a slowdown is noticed. Bankers will be asked to meet SME entrepreneurs to address their problems.

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Safeguard levy to fight cheap imports

NEW DELHI: The government is examining a plan to impose safeguard, or temporary, Customs duties to help sectors such as steel and chemicals fight a surge of cheap imports, notably from China, officials say.

It has also asked the local industry to help identify products which have seen a big rise in imports in the past few months, as it looks to use all weapons in its arsenal to protect domestic manufacturers, they said.

The government has expedited anti-dumping investigations against cheap imports of a large number of items, mostly from China, and has imposed import restrictions on products used by the automobile and construction industries.

“Imposition of safeguard duties is another option for protecting the domestic industry we can explore. We are putting in place the mechanism which would allow us to take action against import surges,” a government official, who asked not to be named, said.

While anti-dumping duties are imposed if it is established that a country is exporting goods at prices lower than what it is sold for locally, safeguard duties can be imposed if there is a surge in imports leading to market disruption and serious injury to domestic industry.

Since demand in India’s traditional export markets such as the EU, US and Japan is drying up due to the global economic downturn, the government is keen to ensure the domestic industry is protected by catering to the growing domestic market. It is, therefore, exploring a variety of measures to check cheap imports.

The domestic steel industry, hit by falling international prices and imports from China, has received help from the government in the form of fast anti-dumping investigations and import curbs restricting imports of items such as seamless pipes and tubes to only actual users.

“For products where anti-dumping duties cannot be imposed, the Centre can consider imposing safeguard duties,” the official added.

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Hot-rolled coil import put under restricted list

Responding to demand made by the domestic steel industry for measures to check cheap imports from China, the government, on Friday, restricted the import of hot-rolled coils which was so far being freely imported.

This means that the item can now be imported only by actual users against licenses issued by the government and traders will no longer be allowed to import.

The move is part of the government’s effort to help the domestic industry deal with the global economic crisis and the slow-down in demand.

A notification issued by the directorate general of foreign trade (DGFT) stated that import policy for the item `hot rolled coils’ will be amended to read as "restricted" instead of free.

Federation of Indian Export Organisations (Fieo) director general said the measure would be a disincentive for imports as traders can no more bring in hot-rolled coils and supply it directly to the domestic industry. “Since only actual users will be given licenses to import, the total import is expected to go down,” he said.

According to Vinod Mittal of Ispat Industries, the government has taken a pro-active decision at an appropriate time and the move will stabilise the domestic steel industry to some extent. “We are even looking at reducing steel prices further to help consumers get better prices. We will start operating at 80% of our capacity (against 50% at present) from January onwards,” he said.

There have been apprehensions about Chinese companies dumping hot-rolled coils in the Indian market. Reports on a possible withdrawal of the 15% export duty imposed by the Chinese government on steel has made the domestic industry even more jittery.

“Since anti-dumping investigations take a long time, the effective and fast way to check cheap imports is by restricting it. This is what the government has done,” an industry source said. More than 90% of India’s steel imports is from China. The government had, earlier, withdrawn export duty on certain iron and steel products to help domestic steel producers.

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Revision of customs duties on certain items and procedural simplification in Service Tax refund to exporters

In the wake of the recent fall in the international prices of commodities and with a view to safeguard the interests of domestic producers, Government have carried out certain changes in the customs duty rates. The details of these changes are as under:

(i) Withdrawal of the full exemption from customs duty granted earlier on specified iron and steel items such as Pig iron, spiegeleisen, semi-finished products, flat products and long products. Consequently, they will be subject to a basic customs duty of 5% ad valorem.

(ii) Withdrawal of full exemption from customs duty granted earlier on crude soyabean. Consequently, crude soyabean oil will be subject to a basic customs duty of 20% ad valorem. There is no change in the import duty on refined soyabean oil.

These changes come into effect on the 18th of November, 2008. Notification No.122/2008-Customs dated 18.11.2008 has been issued in this regard.

With a view to simplify the refund based service tax exemption scheme on taxable services attributable to exports, the time limit for filing refund claims has been extended from 60 days to six months. In respect of technical testing and analysis service, the documentation required for claiming refund has been simplified. Notification No.32/2008-Service Tax dated 18.11.2008, amending notification No. 41/2007-Service Tax has been issued in this regard.

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Rupee weakens further to past 48 per dollar

MUMBAI: The Indian rupee weakened past 48 per dollar on Tuesday for the first time since January 2003 as concerns intensified about foreign fund outflows amid a global financial crisis.

At 9:03 a.m. (0333 GMT), the partially convertible rupee was at 48.01/48.02 per dollar, after falling 1.5 percent on Monday to 47.80/81.

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Rupee off 5-year low, but outflows weigh

MUMBAI: The rupee bounced off five-year lows on Wednesday after state-run banks sold dollars heavily, but concerns about capital outflows weighed on the Indian unit.

By 10:35 a.m. (0505 GMT), the partially convertible rupee was at 47.012/13 per dollar after falling to 47.2350 in opening deals, its weakest since June 2, 2003 and down 0.6 percent from the previous close of 46.95/96.

At the low, the rupee had lost 16.6 percent in 2008 making it among the worst performing Asian currencies. In 2007, the rupee had gained more than 12 percent.

"Companies, refiners, foreigners are all buying dollars," said a senior dealer at a foreign bank, who expected the rupee to trade in a broad 46.90-47.20 band on Wednesday.

He said the state-run banks, which usually act on behalf of the central bank, were the only ones selling dollars.

The central bank is watching the foreign exchange market as usual, Shyamala Gopinath, deputy governor at the Reserve Bank of India said on Wednesday.

Traders said heavy withdrawals by foreign funds from Indian shares had put pressure on the rupee, and the outlook remained grim with the spreading global financial crisis.

Foreigners have sold a net $9.3 billion of Indian shares so far in 2008, after buying a record $17.4 billion last year.

Data on Tuesday showed India's current account deficit widened sharply to $10.72 billion in the June quarter from $1.04 billion three months earlier as a sharp rise in oil prices widened the trade gap.

One-month non-deliverable forwards were at 47.23/47.33 per dollar, weaker than the onshore rate.

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Currency chaos hits importers, exporters alike

NEW DELHI: The steady depreciation of the rupee against the dollar and the unpredictable cross-currency movements in the global market have put India’s exporters and importers in a fix. While small and medium-size exporters who had not hedged their risks when the rupee was rising last year are reaping windfalls of the dollar breaching Rs 47, uncertainty about the future exchange rate is affecting their pricing decisions.

In the present situation, large and medium-sized exporters who had hedged their risks are clearly the losers. Most importers, who had not hedged their risks assuming that last year’s appreciation in the value of the rupee was here to stay, are also paying for the mistake.

With the export sops announced last year including an increase in the drawback rate and an interest rate subvention of 4% being withdrawn on October 1, exporters lament that the incentives are being removed much before they can actually reap the benefits of dollar appreciation. Industry executives met RBI governor D Subbarao on Tuesday, proposing that measures be taken in the upcoming monetary policy to increase money supply and ease the present credit squeeze.

Delhi Exporters Association president SP Agarwal told that when the dollar had fallen to Rs 39 last year and the government and many experts were predicting a further fall to Rs 33-34, a number of exporters had done forward booking at Rs 39.

“They are the ones who are suffering. FIEO director general said that at least half the country’s exporters had hedged their risks last year.

From the consumer’s point of view, precious metals like gold and silver are becoming dearer due to the weaker rupee. Since demand is going up during the festival season, the rupee depreciation has come at the wrong time. Diamond jewellery would also cost more since precious stones as well as gold are imported, trade sources said.

Edible oil is another item which would turn dearer due to depreciating rupee, as the bulk of the domestic demand is met through imports. In this case too, demand is increasing now due to the onset of the festival season.

Fertilisers, project imports and electronics would also turn dearer, trade sources said. For ultra-mega power projects, Indian companies are importing equipment worth billions of rupees.

Prompted by similar expectations of the dollar depreciating further, importers had refrained from hedging. As a result, despite international prices of oil and cereal decreasing, it is not percolating down to the Indian consumer because of the depreciating rupee, Mr Sahai said.

The sudden turnaround in the value of the dollar which has appreciated by approximately 18% in the last two quarters also has exporters confused over what price to quote for their future orders. There is a time lag of about five-six months between order booking, delivery of goods and the receipt of payment.

Mr Agarwal said that while many exporters were booking orders on the basis of dollar valued at Rs 44-45, they had their fingers firmly crossed. “We are just hoping that when we realise the payment for our orders in the summer, the dollar should not have fallen below Rs 44,” Mr Agarwal said.

While small exporters are rejoicing, the situation is becoming tougher for large IT companies which have substantial earnings in foreign currency. Though many of them have hedged, the extent of fluctuation is far higher than anticipated.

Interestingly, some exporters who want to play it safe and have an understanding with buyers, are quoting in Indian rupees. “When exporters quote in rupees, they are not affected at all by the value of the dollar,” Mr Sahai said. Some others are quoting in stable currencies depending on the region where they are trading, he added.

However, this too has its risks, as cross-currency movements are unpredictable, Mr Sahai pointed out. “While the dollar is appreciating against the Indian rupee, it is depreciating against the euro. Cross-currency movement is giving a complex picture,” he said.

Exporters claim that since they are yet to get over the losses suffered last year due to the more-than 12% depreciation in the value of the dollar, it was too early for the government to take back the sops. “When the dollar was depreciating, it took the government six months to react. But now that the situation has reversed, it is in a hurry to take them back,” Mr Agarwal said.

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Engineering goods exporters eye ASEAN market KOLKATA: On the heels of an economic crisis getting intensified in the US and Europe, Indian engineering

KOLKATA: On the heels of an economic crisis getting intensified in the US and Europe, Indian engineering goods exporters are looking towards the A sean for driving up exports from the country.

The exporters' body is especially counting on the potential of expanding trade with the region since it accounts for nearly 30% of India's engineering goods exports.

Countries like Malaysia, Indonesia and Singapore in particular hold immense potential. Currently, the ASEAN trade bloc is the third-largest market in Indian engineering goods, behind the US and Europe.

Engineering goods exporters are more upbeat about growth prospects in the ASEAN after holding the India Engineering Export Exhibition (Indee) recently in the Malaysian capital, Kuala Lumpur.

At Indee, which was organised by EEPC India, in collaboration with the federal government of Malaysia and leading chambers, Indian compnies received export orders worth nearly $ 0.20 million and trade enquiries worth $5 million.

In course of buyers and sellers meets at Indee, two Malaysian companies evinced interest in entering into joint ventures with Indian companies for manufacturing mechanical seals and solar panels.

EEPC India chairman Rakesh Shah said with talks going on between the countries for signing the Comprehensive Economic Cooperation Agreement (CECA), Kuala Lumpur has been chosen the first venue for export promotion among the ASEAN countries.

Besides the prposed CECA, trade between India and Malaysia is expected to get a boost in the wake of India signing a free trade agreement with the ASEAN trade bloc. Bilateral trade between India and Malaysia has grown 41% to $4.14 billion during January-June 2008.

Exports of Indian engineering goods to Malaysia increased 106% to $747 million in 2007-08 while India's imports from that country increased 52% to $569 million during the year. EEPC expects a 100% jump in Indo-Malaysian bilateral trade in engineering goods in the current year.

"As per feedback from 54 out of 169 Indian engineering companies which participated in the Indee, 590 new contracts were generated during the exhibition," said Mr Shah.

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India-ASEAN to sign trade pact on Dec 18: Ramesh

NEW DELHI: India and the 10-nation ASEAN will sign around December 18 this year the Free Trade Agreement in goods, negotiations for which have been wrapped up, Minister of State for Commerce Jairam Ramesh said today.

"We will formally be signing the FTA with ASEAN around December 18," Ramesh said at a seminar on ASEAN-India FTA organised by think-tank RIS and the Asian Development Bank.

The deal will be inked at the India-ASEAN Summit in Bangkok, to be attended by Prime Minister Manmohan Singh.

Ramesh said India has shown "remarkable flexibility" in terms of the Rules of Origin and approach to tariff heading, while negotiating the trade pact with the Association of South East Asian Nations despite having a trade deficit with the bloc.

In 2007-08, India's exports to ASEAN were USD 16 billion while imports were USD 24 billion. After the signing the pact in goods, the two sides would begin negotiations for an agreement in services and investment.

India concluded talks for a FTA with the 10-nation bloc last month. While it would eliminate or substantially reduce duties on almost 96 per cent of the items it trades with ASEAN, India is protecting its sensitive agriculture sector by keeping over 300 items out of the trade agreement.

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The global crisis and its impact on India

Globalisation has ensured that the Indian economy and financial markets cannot stay insulated from the present financial crisis in the developed economies.

The debate, therefore, can only be on the extent of impact and how resilient India is to withstand the storm with minimal damage! In the light of the fact that the Indian economy is linked to global markets through a full float in current account (trade and services) and partial float in capital account (debt and equity), we need to analyse the impact based on three critical factors: Availability of global liquidity; demand for India investment and cost thereof and decreased consumer demand affecting Indian exports.

The concerted intervention by central banks of developed countries in injecting liquidity is expected to reduce the unwinding of India investments held by foreign entities, but fresh investment flows into India are in doubt.

The impact of this will be three-fold: The element of GDP growth driven by off-shore flows (along with skills and technology) will be diluted; correction in the asset prices which were hitherto pushed by foreign investors and demand for domestic liquidity putting pressure on interest rates.

While the global financial system takes time to “nurse its wounds” leading to low demand for investments in emerging markets, the impact will be on the cost and related risk premium. The impact will be felt both in the trade and capital account.

Indian companies which had access to cheap foreign currency funds for financing their import and export will be the worst hit. Also, foreign funds (through debt and equity) will be available at huge premium and would be limited to blue-chip companies.

The impact of which, again, will be three-fold: Reduced capacity expansion leading to supply side pressure; increased interest expenses to affect corporate profitability and increased demand for domestic liquidity putting pressure on the interest rates.

Consumer demand in developed economies is certain to be hurt by the present crisis, leading to lower demand for Indian goods and services, thus affecting the Indian exports.

The impact of which, once again, will be three-fold: Export-oriented units will be the worst hit impacting employment; reduced exports will further widen the trade gap to put pressure on rupee exchange rate and intervention leading to sucking out liquidity and pressure on interest rates.

The impact on the financial markets will be the following: Equity market will continue to remain in bearish mood with reduced off-shore flows, limited domestic appetite due to liquidity pressure and pressure on corporate earnings; while the inflation would stay under control, increased demand for domestic liquidity will push interest rates higher and we are likely to witness gradual rupee depreciation and depleted currency reserves. Overall, while RBI would inject liquidity through CRR/SLR cuts, maintaining growth beyond 7% will be a struggle.

The banking sector will have the least impact as high interest rates, increased demand for rupee loans and reduced statutory reserves will lead to improved NIM while, on the other hand, other income from cross-border business flows and distribution of investment products will take a hit.

Banks with capabilities to generate low cost CASA and zero cost float funds will gain the most as revenues from financial intermediation will drive the banks’ profitability.

Given the dependence on foreign funds and off-shore consumer demand for the India growth story, India cannot wish away from the negative impact of the present global financial crisis but should quickly focus on alternative remedial measures to limit damage and look in-wards to sustain growth!

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Farmers take part in referendum on Reliance Group SEZ

In the first exercise of its kind in the country, landowners and farmers in 22 villages in Raigad district, about 80km from here, on Sunday expressed their opinions in a referendum on whether they supported or opposed the Reliance Group's proposed Special Economic Zone.

Thousands of farmers and landowners of villages located in Pen tehsil submitted their opinions to the state government in a form containing "yes or no" answer.

Preliminary reports said about 5,869 out of an approximately 30,000 landowners expressed their opinions.

Farmers, who had already given permission for land acquisition for the SEZ and those had possession of their property, could submit their opinions which will be compiled into a report and submitted to the state government, a senior official said.

The district authorities will take up the result of the referendum tomorrow and give a report to the government.

"Approximately 2,307 hectares of land which is under the Hetwane dam irrigation scheme is located in the 22 villages. The land is also eligible for acquisition for the SEZ," Sameer Kurtkoti, Deputy Collector (Land Acquisition Department), said.

Farmers of the 22 villages had opposed the project stating their properties came under arable land due to the irrigation project and was ineligible for the SEZ.

Amidst tight security, landowners began submitting their opinions at primary schools in their villages and the process continued from 0900 hours to 1700 hours. Video cameras were used to document the proceedings.

Over 170 government officials and hundreds of police personnel, including State Reserve Policemen, were deployed to ensure security in the region.

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CBEC wants SEZ units to be surveyed for service tax compliance

New Delhi, Sept. 19 SEZ units providing taxable services to recipients outside the special economic zones (SEZ) are under Government scanner, with revenue department officials being directed to submit by October 31 a report on whether such units were discharging their service tax obligations or not. The report is to be submitted to the Director-General of Service Tax.

The Central Board of Excise & Customs (CBEC) directive to survey the SEZ units follows a recent report of the Comptroller and Auditor General (CAG) which highlighted that certain SEZ units in Chennai and Kochi were providing taxable services such as manpower supply services, technical testing and analysis service to units / persons outside the zone without payment of service tax.

Taxable services received by SEZ units and SEZ developers for consumption within the SEZ are exempt from service tax. However, service tax is applicable on taxable services provided by SEZ units, except in situations where specifically exempted.

In a communiqué to its field formations, the CBEC has said they should ensure that SEZ units, providing taxable services to any person for consumption in domestic tariff area (or providing any taxable service which is otherwise not exempt), should register with the jurisdictional service tax authorities and discharge their service tax liability.

Meanwhile, CBEC has also clarified that SEZ units claiming refund of service tax should register with the jurisdictional service tax authorities (i e. service tax commissionerates in Delhi, Mumbai, Bangalore, Ahmedabad, Kolkata and Chennai and the jurisdictional central excise commissioners elsewhere).

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Denial of export benefit to US co not discriminatory

MUMBAI: In a verdict crucial to foreign companies operating in India, the Pune Income-Tax Appellate bench has held that the denial of export benefits under Section 80 HHE of the Income-Tax Act to an American company operating in India could not be construed as discrimination between Indian and foreign companies.

This decision is critical in view of the increasing complaints from foreign companies alleging discrimination in tax treatment between them and Indian companies. The company, which approached ITAT claiming that the denial of Section 80 HHE benefit is discrimination under Article 26 of the Indo-American tax treaty, is a US company — Automated Securities Clearance.

The division bench of Pramod Kumar and Mukul Shrawat said differential treatment does not always amount to discrimination. Only when the difference in treatment is proved to be unreasonable — arbitrary and irrelevant — can it be construed as discriminatory. ITAT also pointed to the provisions in the US tax laws for permanent establishment tax levied on foreign companies, higher withholding tax requirements for foreign companies, higher penalties for foreign companies. Therefore, differences in treatment between domestic and foreign companies are institutionalised in the Indo-US DTAA, the tribunal held.

The tribunal further held that difference in treatment was based on the residential status of the company and not on the basis of the location of incorporation.

In this case, the difference in treatment on the issue of tax incentive for export is also in tune with the objectives of the legislation of such laws. The objective of such legislation was to enhance the foreign exchange reserve of the country. Therefore, the difference in treatment in this case is based on a certain rationale. There can be difference in tax treatment between the companies in India and the permanent establishment of other countries in India, but as long as the differential treatment is justified on the basis of dissimilarities in their situation, such treatment cannot be accounted as discriminatory, the tribunal concluded.

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Rupee posts biggest fall in a decade

MUMBAI: The rupee posted its biggest fall in a decade on Tuesday, hit by risk aversion and banks arbitraging a weaker offshore rate, although suspected central bank intervention stopped the slide just short of 47 per dollar.

The partially convertible rupee ended at 46.89/90 per dollar, off a trough of 46.99 which was its lowest since July 24, 2006.

The rupee fell 1.8 percent from its close of 46.05/06 on Monday, its biggest fall since May 14, 1998, according to Reuters daya, when the currency fell 2 percent after sanctions were imposed on India for its nuclear testing. One-month offshore non-deliverable forward contracts were quoting at 47.15/25, weaker than the onshore rate, indicating a bearish near-term outlook for the rupee.

That also created an arbitrage opportunity, where the dollar is bought against the rupee in the onshore market and sold in the offshore NDF market to exploit the price differential. "There are no (dollar) sellers in the market apart from the central bank. There is lot of oil, equity and NDF-related dollar demand, and even importers are covering near-term imports," said Madhusudan Somani, associate director of financial markets at Yes Bank.

"The rupee may test 47.20-25 levels in the near term," he added. Dealers said the central bank was seen selling dollars to halt the rupee's sharp decline, but sales were offset by demand for the US currency. At its low on Tuesday, the rupee was down 6.5 percent in September and more than 16 percent in 2008. Dealers estimated the central bank had sold $1.5-$2 billion to put a floor under the rupee on Tuesday.

Indian shares pulled out from a nosedive to end almost level on Tuesday after they had opened down 3.5 percent. Capital outflows from the local shares so far in 2008 total a net $8.4 billion, including $1 billion in September, a sharp turnaround from a record net inflows of $17.4 billion in 2007.

Traders said broad strength in the dollar versus other currencies overseas was also hurting sentiment on the rupee. The dollar steadied near 4-month lows versus the yen on Tuesday, but held gains against high yielders as investors took refuge in safe-haven assets following the collapse of Lehman Brothers.

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Interview with Commerce Secretary on SEZs and land acquisition

The controversy over the threatened withdrawal of Tata Motors from Singur in West Bengal has come not a day too soon. The Singur plant is not located in any designated Special Economic Zone (SEZ).

The acquisition of land from farmers by the company and the support extended, and still being extended, by the West Bengal Government to Mr Ratan Tata in the interest of attracting investments into the State in the face of the Opposition onslaught, piloted mainly by the Trinamool Congress leader, Ms Mamata Banerjee, is something incredible.

There was trouble in Goa too where the SEZ developers are facing the wrath of the State government despite a few SEZs having been notified by the Centre. Justice demands that the developers be compensated for their sunk cost in the case of SEZs . This is needed to ensure that the promises of assured support to industrialists for investing their capital and labour to generate income, employment and manufacturing activity that would do proud to the State, are redeemed.

In both the cases, the moot point is, how far the Central and State governments would renege on their commitments to industry, particularly when faced with political choices for survival. In this case, the domestic investors who could ill-afford to squander their precious capital in endless litigation or prolonged spell of uncertainty over the future of their proposed activities.

To get an idea of what the Centre thinks about this issue here is the extracts of an interview with Commerce Secretary, Mr Gopal K Pillai.

Always courteous and candid and not to mince words in the usual officialese, Mr Pillai gave his views on SEZ, land acquisition for industrial projects and on how the Commerce Ministry hopes to transform the country’s manufacturing activity and employment generation through the vehicle of SEZs in the foreseeable future.

Excerpts from the interview:

On SEZs: Since the Special Economic Zones Act, 2005 along with SEZ Rules 2006 came into effect on February 10, 2006, over 253 new SEZs have been notified, which have established 343 units and got over a lakh of employment to people. Then, there are also 332 units in other Central Government SEZs and there are SEZs set up by States numbering 285 units.

Before 2005, there were 927 units under the extant SEZ and, post-SEZ Act and Rules, 970 units have come in two years.

SEZs get notified and it takes 12-18 months for initial infrastructure like laying roads, giving electricity and water connections and to put other amenities in place before the first unit comes up. Of 235 notified SEZs, a little less than 100 are functional, while others are in the process of building basic infrastructure; the units will be set up subsequently.

Multi-product SEZs, where the area spreads to 1,000 hectares or above, take at least five years to come up.

On SEZ land ceilings: The empowered Group of Ministers (eGoM) has fixed an upper limit of 5000 ha for the time being for the SEZ. As it is, nobody today has more than 2,000 ha in the SEZs. Let somebody set up an SEZ with 5,000 ha before the existing ceiling is raised.

The only SEZ that is coming near the ceiling figure now is the Adani Group-promoted Mundra SEZ with Mundra Port SEZ of 2,700 ha and another multi-product SEZ in adjacent site with the same acreage or so. At the moment, it is two separate companies.

Administratively, it would be convenient if the two SEZs are run as one, but the question as to whether the existing ceiling should be eased or not, will go to the eGoM.

On parallel row in Singur and Goa SEZ: In the Goa case, government acquired the land for industrial purposes in 2002, but the issue today is that the State government does not want the SEZ and has told the developers to give up the SEZ status and run the factory normally But the fact remains that neither industrialists nor SEZs can function without the approval of the State.

So if the developer gets compensation for all the investments he has made, he would go away as he is responsible to the shareholders.

In the case of the Singur, the West Bengal government has handled the situation badly. When you had a problem with the acquisition, the parties should have been compensated. There are SEZs coming up in West Bengal and there is no problem.

Bharat Forge is acquiring 4,000 ha in Pune, Maharashtra. Social activists, including Ms Medha Patkar, visited the place and were told by the agriculturists there that the company was formulating a rehabilitation package, with plans for training and social infrastructure. Sri City SEZ in Nellore, spread over 5000 acres, purchased the entire land from the farmers without any agitation or protests. The eGom is meeting this month to resolve some issues plaguing SEZs, following its meeting last month when it took three important steps.

One, for handicrafts SEZ, it decided to bring down the area to 10 ha from 100 ha.

Second, for SEZ’s authorised activities outside the SEZ, it gets refund of service tax provided the earnings is in foreign currency.

But the SEZ developers buy equipment, steel or cement for infrastructure works and do not earn foreign exchange to qualify for exemption from service tax.

But the drawback duty had the stipulation that the payment must be in foreign exchange for purchase of domestic materials to get refund. The Finance Ministry has agreed that, in such cases, even if the payment is in Indian rupees, you can pay him drawback or DEPB reimbursement.

On ‘vacant’ land issue: The Finance Ministry has taken a stance that the SEZ units in an abandoned building, even if it has a shed or foundation or a small building, would not qualify for tax breaks. But the Board of Approval (BoA) for the SEZ has taken a view that if it is a shed, the SEZ developer/unit can demolish it. Where there is a building inside the vacant land inherited by the developer that can be used as part of the non-processing area, why ask for it to be demolished?

Because, first, the developer is not claiming tax benefits and if he is asked to demolish the building, he would re-construct it and then seek reimbursement for building activities. This may look like a non-issue but the matter has been referred to the Law Ministry.

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Centre shelves plan to impose export obligation on SEZ units

NEW DELHI: Here is some good news for units located in special economic zones (SEZs). The government has dropped a proposal for imposing a minimum 51 per cent mandatory export obligation on such units. There would be no changes in the present SEZ rules, which lay down that SEZ units need to be only net foreign exchange earners.

The decision taken at a recent meeting of the empowered group of ministers (eGoM) on SEZs would come as a huge relief to investors in SEZ units, both foreign and domestic, as they would not be forced to start exporting from the first year of operations.

“There are a number of cases, like the Nokia unit in Sriperumbudur, where investors did not export much in the first year. However, they started exporting a huge chunk of their total production subsequently. A minimum export obligation would take away this flexibility which units enjoy at the moment,” an official of the commerce department said.

It was the finance ministry which had proposed that the net foreign exchange earner criteria for SEZ units — which means that each unit’s exports should be more than its imports — was not enough to ensure that substantial exports take place from the units.

It said that some units could also escape by not exporting anything if their import content was low. The commerce department, however, argued that since units in SEZs get tax benefits only on the products they export, they would, on their own, want to export as much as possible. In fact, at present, more than 80 per cent of goods produced in SEZ units are exported, the official pointed out.

The proposal was debated at a number of eGoMs but no decision could be taken earlier. However, with the chairman of the Prime Minister’s Economic Advisory Council, C Rangarajan, stating earlier this year that export obligation on SEZ units was not necessary, the commerce department’s case got strengthened.

“In the recent eGoM meet earlier in August, everybody agreed that it was not necessary to impose an export obligation on SEZ units and the idea should be given up,” the official said. Exports from SEZs were estimated at Rs 66,638 crore in 2007-08. This was 92 per cent higher than exports of Rs 34,615 crore from the zones in 2006-07.

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Goa to take back SEZ land from three promoters

MUMBAI: After scrapping three notified SEZs, Goa government is now planning to take land back from three promoters — Cipla, K Raheja and Peninsula Land.

For many, the government’s decision to revert the land looks an attempt to show allegiance with local villagers who have been accusing the state of being soft on SEZ promoters, even blaming it of allowing ‘backdoor entry to developers’. Goa chief minister Digambar Kamat, it seems, now wants to prove this wrong. He wants to snatch the land back from these projects.

Confiscating land, according to senior bureaucrats, is an attempt by the state to win over agitating villagers, thereby paving way for future projects. Even as industrialists point to the state’s negative growth and want Goa to rewrite its industrial policy, Mr Kamat is firm on his stand on scrapping three SEZs.

“If people don’t want (SEZs), then we will not go ahead,” Mr Kamat said. He had a ready answer to question on the impact this decision will have on the state’s investment scenario. “There are other ways for economic development, like bringing in non-polluting industries,” he said.

The tourist state is locked in a bitter battle over land with SEZ developers. The state’s decision to scrap three projects, after they were given all clearances, has landed in the court. The Centre too, is working out its response to the state’s move. Initially, though it thought of over-ruling the state’s decision, political pressure forced the Manmohan Singh government to steer clear of the issue. With the state government going a step further in taking the land back from promoters, the Centre’s reaction remains to be seen.

The development, however, has come as a big jolt to SEZ promoters. “This will force us to challenge one more decision in the court,” said a senior official of K Raheja Corp.

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Exporters disappointed over duty drawback reduction New Delhi, Aug. 30 Exporters by and large have voiced concerns over the revised all-industry draw

New Delhi, Aug. 30 Exporters by and large have voiced concerns over the revised all-industry drawback rates for 2008-09 announced by the Finance Ministry on Friday, stating that the general reduction in duty rates was a disappointment as it came at a time of weak external demand and also when the export credit subvention scheme was set to be withdrawn by the Government.

“The new rates have come at a time when most export industries are in bad shape. The reduction in drawback rates will adversely impact sectors like textiles,” Mr Ganesh Kumar Gupta, President of Federation of Indian Export Organisations (FIEO), told Business Line.

He said FIEO expected the Finance Ministry to pay heed to the submissions of various economic ministries like commerce and textiles to continue with existing drawback rates for some more months rather than bringing about changes in such rates. Mr Gupta said there has been a general reduction in drawback rates in most of the items.

General reduction

The sectors where there have been a general reduction in drawback rates include textiles and textile articles, leather and leather articles, metals and articles of metals and bicycle and bicycle parts.

Drawback rates of polymers (HDPE, LDPE and polypropylene), linear alkyl benzene (LAB) and purified terephthalic acid (PTA) have been reduced.

The rates have been increased from 7.6 per cent to 9 per cent and 6.5 per cent to 7.6 per cent on flax yarn and flax fabric respectively.

In textiles and textile articles, the Finance Ministry had reduced the drawback rate for higher quality silk fabrics from 10.8 per cent with a drawback cap of Rs 325 a kg to 9.8 per cent with a drawback cap of Rs 295 a kg.

The rate for fabrics of noil silk has also been revised downwards.

In the case of wool tops, woollen yarn and fabrics, the drawback rates have been decreased by about 18 per cent to 21 per cent.

The caps have also been revised downwards.

For grey cotton yarn, the new rate has been pegged at four per cent irrespective of the counts of the yarn.

cotton yarn

In the case of cotton yarn (dyed), the drawback rate is five per cent irrespective of the counts of the yarn, against six per cent (grey)/7.1 per cent (dyed) earlier. For cotton yarn of 60 counts and more, the earlier rate was 9.5 per cent (grey)/10.6 per cent (dyed).

As for cotton fabrics, the new rate is 4.6 per cent (grey)/5.5 per cent (dyed) with a drawback cap of Rs 14 a kg (grey)/ Rs 20 a kg (dyed). In the case of denim fabrics, the new rate is 5.7 per cent with a cap of Rs 21.5 a kg as against the earlier rate of 8.5 per cent with a cap of Rs 32 a kg.

In the case of synthetic/artificial filament yarn, only customs component of drawback rates has been prescribed.

The drawback rate for Synthetic Filament Yarn now is 2.2 per cent (grey)/2.6 per cent (dyed) and for artificial filament yarn 2.1 per cent (grey)/2.5 per cent (dyed) as against the earlier rate of 3 per cent (grey)/3.5 per cent (dyed) for both types of filament yarn.

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New duty drawback rates effective from Monday

NEW DELHI: The finance ministry on Friday revised duty drawback rates, effecting an across-the-board reduction in line with the duty changes made this year. The changes are based on the recommendations of a committee set up by the finance ministry to study drawback rates.

Duty drawback rates seek to neutralise the incidence of Customs duty, central excise duty and service tax borne by an exported article. The revised rates would come into effect from September 2008, the Central Board of Excise and Customs said in a statement.

The decrease is largely in the case of petrochemicals due to phasing out of import duty on crude oil. The peak rate of aggregate import duties in 2008-09 has come down to 31.7% as compared to 34.13% in the previous year. Customs duty on major raw materials such as crude oil, raw cotton, zinc and Ferro alloys has been eliminated. The excise duty has been reduced across the board from 16% to 14%.

Drawback rates have been increased for some items like flax yarn, which will now be eligible for 9.6% duty from 7.5% earlier. The rate for optical fibre has been increased to 1.2% from 1% earlier. Wooden artwork too would also attract higher drawback rate.

In most cases, the net realisation for exporters would remain unchanged since the finance ministry has pegged the rupee higher against the dollar as compared to last year. The rupee was pegged at 39 to a dollar last fiscal as against 43 in the current revision.

Finance ministry had set up a panel under Prime Minister’s Economic Advisory Council member Saumitra Chaudhuri to determine the rates.

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Anti-dumping duty review on sun film imports

The Commerce Ministry has initiated sunset review of the anti-dumping duty imposed since 2003 on imported sun/dust control polyester film from Taiwan and United Arab Emirates (UAE).

Commonly called speciality polyester film, the sun/dust control polyester film is used in glass windows to reduce solar heat glare, ultraviolet light and other glare. It also provides increased shatter resistance.

In a notification, the Directorate General of Anti-dumping and allied duties in the Department of Commerce said the present investigation is a review as the Authority recommended a definitive dumping duty on the subject goods as the difference between $7.99 a kg and the landed value of imports from Taiwan (Chinese Taipei) and the difference between $8.17 a kg and the landed value of imports from UAE in 2004.

The rules require the Authority to review from time to time the need for continued imposition of the anti-dumping duty. The Authority is also required, on the basis of a duly substantial plea by or on behalf of domestic industry, to undertake a review to determine whether the expiry of duty is likely to lead to recurrence of dumping and injury.

Accordingly, the applicant for the original dumping probe — Garware Polyesters Ltd, Mumbai — has filed an application with the Authority, seeking a review probe for continuation of anti-dumping duty on the subject goods originating or exported from Taiwan and UAE for a further span of five years.

On the state of the industry, the applicant claims that even though the performance of the domestic industry has improved, the situation continues to be ‘fragile’ and ‘injury’ to the domestic industry is likely to intensify in the event of revocation of anti-dumping duties.

The Authority said the period of probe for the present review is from April 1, 2007 to March 31, 2008 and the period for injury examination would include the period of investigation (POI) and three years prior to it, i.e., April 2004-March 2005, April 2005-March 2006 and April 2006-March 2007.

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Slump in Chinese textile market brightens prospects for India

After a tough phase, there seems to be signs of hope for the rupee-scarred Indian textile industry. This time, it is the slump in Chinese textiles that has brought some reason to cheer. Besides, neighbouring competing countries are also facing problems, brightening the prospects for Indian textiles.

Mr P. Sundar Rajan, Managing Director, SP Apparels, says: “In India’s case, this is true for the next two decades at least. Western buyers are now seriously looking at India. We have been getting enquiries from hitherto unexplored markets such as Hong Kong, Singapore and African nations.”

SP Apparels is the No. 2 exporting house in the country and owns brands such as Crocodile, Natalia and Crocokids.

Tirupur’s Royal Classic Group, which owns the brand Classic Polo, has already set up its marketing offices in Singapore and Malaysia sensing this opportunity.

Dragon in distress

Appreciation of the Chinese yuan, shrinking raw material (cotton) base and rising labour wages (30 per cent higher than that of India) are posing a serious threat to the Chinese textile industry.

These, in turn, have come as a blessing in disguise for the Indian textile industry that is now hopeful of emerging as a major exporter once again, overcoming one of its worst phases.

In January, the annual appreciation of the rupee was over 11 per cent, while the Chinese currency appreciated by 6.96 per cent. But when the rupee’s average appreciation dropped to 8.36 per cent in March, the yuan was up 8.52 per cent.

According to data available with the General Administration of Customs of China, textile and garment exports in the first half of this year fell 11 per cent year-on-year. Textile and clothing exports totalled $81.68 billion, the data showed. The customs report revealed that apparel export growth slowed to 3.4 per cent.

The country has registered a negative 2.57 per cent growth in exports to the US in January-February 2008. China is witnessing negative growth in the US for the first time in over a decade, industry sources said.

According to a recent survey by the China Cotton Textile Association across 17 provinces, nearly half of the textile companies surveyed wanted to quit and venture into other businesses and nearly 45 per cent have shifted their focus on the home turf.

Signs of sunrise

According to figures available with the US-based Office of Textiles & Apparel, during the first half of the calendar year, China posted a negative 2.43 per cent growth ($13,834 million) in textile and apparel exports to the US, while India registered a 1.89 per cent growth ($2,742.291 million).

Apart from China, the recessionary trend is also being faced in neighbouring competitors Sri Lanka and Bangladesh.

Hit by an economic downturn, Sri Lankan textile units are on a staff downsizing mood, while labour unrests owing to low wages and rising food prices plague Bangladesh’s textile sector.

‘cautious approach’

“China’s pain is India’s gain. It’s true that we have ample opportunity but we have to consider the spiralling raw material costs, rising cost of production and insufficient power problems here.

Most of the companies are not able to pass it on to the overseas buyers and we should have a cautious approach,” said Mr D.K. Nair, Chairman, Confederation of Indian Textile Industry (CITI).

On the raw material front, prices of cotton are on the decline for the past 3-4 days and industry sources expect it to slide further in the coming days, much to the relief of the textile sector.

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Exporters may have to settle for lower duty drawback rates

Exporters may have to settle for lower all-industry duty drawback rates for 2008-09 when the new rates are announced in the coming week.

The Government appointed three-member committee for formulating the duty drawback rates is understood to have recommended “generally lower rates” for 2008-09 than those suggested for the previous year.

The committee, headed by Dr Saumitra Chaudhuri, Member of the Prime Minister’s Economic Advisory Council, had recently submitted its report to the Finance Minister, Mr P. Chidambaram. Almost 90 per cent of exporters rely on the all-industry drawback rates.

Sources said that the significant reduction in customs and excise duties on many raw materials in Budget 2008-09 and also in the following months has led to lower recommended rates, especially for the downstream finished products. Rupee movements have had very little bearing on the recommended rates.

Meanwhile, Dr Chaudhuri told Business Line that the committee had taken the “most recent prices” (April-June 2008) of the input materials for arriving at the recommended duty drawback rates.

Interestingly, the committee has, for its recommendations, not limited itself to only the duty changes made in Budget 2008-09, but has also factored in the major duty rejig made by the Government in June 2008 on crude oil, petrol and diesel and also the removal of customs duty on raw cotton in July 2008.

Factoring in the duty changes in crude oil and other petroleum products has impacted the drawback rates of downstream finished products in the petrochemical industry, leading to lower recommended drawback rates for various products including plastics and manmade fibres, sources said.

In the first week of June 2008, the Government had removed customs duty on crude oil and also cut by 5 per cent the customs duty on petrol and diesel to 2.5 per cent. The customs duty on aviation turbine fuel (ATF) was also reduced. Besides, excise duty on petrol and diesel was cut by Re 1 a litre to Rs 13.35 and to Rs 3.60, respectively.

Taking into account the customs duty abolition on raw cotton has led to lower recommended duty drawback rates on certain finished garments.

The all-industry duty drawback rates are worked out by considering the consumption of input materials and the incidence of duties on these input materials.

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China's loss can be India's gain in textile market

BANGALORE: A fall in the export of textile and apparel from China to the United States during January-June, even as the value of India’s shipments remained unchanged, is sparking hopes of a shift in US orders from the world’s most populous nation to this country.

India, Vietnam, Cambodia and Bangladesh are among the few countries whose exports of textile and apparel to the US rose during the first six months of 2008 while the world’s biggest economy goes through a downturn.

However, China, Pakistan, Sri Lanka and Turkey have seen a slowdown in off-take from their US suppliers amid a drop in the value of the country’s textile and apparel imports.

“One can see some shift in orders from China to other countries, notably Bangladesh and India. We can possibly look at an additional $1 billion of exports happening out of India,” Rajan Hinduja, the MD of Bangalore-based Gokaldas Exports said. US importers are aggressively looking at alternate sourcing locations and India is high on the buyers’ list, he observed.

Official US statistics show that the country imported textiles and apparel worth $24.37 billion during Jan-June 2008, a 5.1% drop compared to $25.7 billion in the corresponding year-ago period. From 2004 to 2007, the country’s imports rose from $ 46.93 billion to $ 53.12 billion.

India’s exports to the US in the first six months this year remained barely changed at $1.42 billion from $1.41 billion while Vietnam’s grew to $824 million from $668 million. Bangladesh’s shipments went up to $832 million from $811 million.

The value of Chinese textile exports, on the other hand, fell from $9.7 billion to $ 9.5 billion, while Pakistan was down to $1.42 billion ($1.68 billion) and Sri Lanka $ 201 million ($ 245 million). Turkey clocked exports of $264 million from $313 million in the first six months of 2007.

Admitting that even while the US economic slowdown was hurting Indian exporters, Mr Hinduja said prospects were brighter for the months ahead, “If you look at the order flow happening for the spring/summer-2009 season, there’s still room for hope.”

Daljeet Singh Kohli, head of the private client group at Emkay Global Financial Services, was of the view that global buyers are looking at the cheapest-cost producer. “Indian exporters need to look at moving up the value chain and ensuring better realisations at a time when currency movement would be highly unpredictable,” he said.

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Duty-free export of steel items may get govt nod

NEW DELHI: The government plans to allow duty-free exports of steel products that are manufactured using imported inputs. The finance ministry has finalised a new scheme for the steel sector under which the export duty on value-added steel products would be withdrawn to the extent of imported raw material used in it.

The benefit would be applicable only for companies using advance licensing scheme (ALS) to avail duty-free imports of capital goods and other inputs. “The new scheme has been finalised by the department of revenue on the advise of the Committee of Secretaries (CoS) reviewing prices of essential commodities. The CoS would now examine the scheme at its next meeting before operationalising it,” an official source said.

The department of revenue has finalised the scheme only for flat steel products (hot and cold-rolled coils) and has suggested that it be operationalised when duty is re-imposed on flat steel products. Sources, however, said that the government may take a larger view of the entire issue and implement the scheme even for steel products that currently attract export duty. Earlier, the steel ministry also suggested exemption for all steel exports that used imported inputs.

While the government withdrew 5-15% export duty on flat steel products and galvanised steel, it has maintained 15% duty on long steel products (used in housing and construction activities), pig iron, sponge iron and semis like blooms, billets, plates and bars. Export duty is levied on these products even if uses imported inputs under the ALS scheme.
Under the new scheme, duty exemption would be extended only after the steel exporter/manufacturer gives an undertaking that the goods to be exported has been manufactured only from material imported under the ALS scheme. The ALS facilitates duty free imports of inputs and capital foods on a specified export obligation.

Companies would also have to maintain separate account for receipt and issue or utilisation of raw material for manufacture of steel products meant for exports. The commerce ministry would prescribe conditions that would have to be adhered for getting the duty exemption.

The changes are expected to improve domestic availability of steel products and reduce pressure on prices that has remained firm so far. Rising price of inputs like iron ore and coking coal is further putting pressure on steel companies to revise prices.

It is expected that domestic availability of various steel products could be improved by over 2.5 million tonnes if exports are undertaken only using imported material.

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FTA: India, ASEAN sort out differences over tariff cuts

NEW DELHI: India and the ASEAN have finally concluded talks on a free trade agreement (FTA), sorting out long-standing differences over proposed tariff cuts in sensitive farm products such as palm oil.

The India-ASEAN trade negotiations committee, which met in Brunei this week, managed to resolve pending issues and sealed the deal, which would result in tariff elimination on four-fifths of all traded commodities in a phased manner over the next 10 years.

Trade ministers from the 10 Asean countries and India will meet later this month to formally approve FTA, following which the legal framework for the deal will be drafted. The agreement will be signed by heads of states during the next Asean summit in December in Bangkok.

The FTA will be implemented from either January 1, 2009, or June 1, 2009, depending on how soon individual Asean members are able to ratify it, government sources said. The agreement is expected to give a big boost to bilateral trade, currently ruling at $30 billion per annum.

With the free trade agreement in place, ASEAN now seems to be ready to start talks on services and investment, which was initially supposed to be part of a comprehensive economic co-operation agreement.

When trade ministers of India and ASEAN meet on August 28, they will fix a date for beginning negotiations on services and investment. Sources said negotiations in the two areas were likely to begin in September this year with the aim of concluding it by December 2009.

An agreement on palm oil duties was reached after India decided to improve its offer in crude palm oil (CPO) to 37.5% and refined palm oil (RPO) to 45% over its offer of 43% and 51%, respectively, made in January this year, sources said. Indonesia, which had earlier proposed to end rates of 35% for CPO and 42.5% for RPO, agreed to India’s new offer.

Disagreement over tariff reduction in palm oil, rubber, tea and coffee had stalled talks for over a year. India has agreed to bring down import duties on tea and coffee to 45% (from the existing bound rate of 100%) and rubber to 50% (from the existing bound rate of 70%) by 2018.

Tariff negotiations in all trade agreements are based on bound rates, which is a ceiling beyond which a country can never increase tariffs under any situation. The applied tariffs, which are existing duties at a given point of time, are often considerably lower than the bound tariffs.

India-ASEAN trade talks have gone through several rough patches ever since discussions began in 2001. An early harvest scheme, including tariff elimination on a handful of identified products over a relatively short period of time, had to be abandoned due to disagreement over rules of origin (ROO).

ROO is a vital part of any trade agreement as it determines how much value addition to an imported product should be done by the partner country to make it qualify as a product originating there, and hence, eligible for duty concessions in the market of the other partner.

India wanted a strict ROO to prevent third-country goods flowing into the country through ASEAN nations at concessional duties.

ASEAN, on the other hand, wanted ROO to be more relaxed. The disagreement was finally sorted out once the FTA talks began. The 10-member ASEAN includes Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Thailand, Singapore and Vietnam.

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Govt assures steps to address exporters' concern

KOLKATA: Government on saturday assured that measures will be taken to address the exporters' concerns, including refunds of taxes, at the earliest.

Indian exporters were facing problems on the issue of refunds of taxes, and introduction of Goods and Services Tax in 2010 would address the problem to a great extent, External Affairs Ministers Pranab Mukherjee said.

The minister, who was speaking at the Engineering Export promotion Council India awards presentation, also said that trade infrastructure needed to be upgraded.

He said the core committee of secretaries would ensure a scheme for upgrading infrastructure for trade. Mukherjee said exports as a percentage of GDP had increased from 14 per cent in 1991 to 34 per cent in 2006-07.

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ASEAN-India FTA talks concluded

After three years of strenuous talks, negotiations for the free trade agreement (FTA) between Association of South-East Asian Nations (Asean) and India were finally concluded Thursday.

Asean secretary-general, Surin Pitsuwan, said the "last-mile" talks, held today, managed to resolve several contentious issues that had been been holding back the two from reaching an agreement.

"I have been just informed that Asean and India have concluded talks on FTA this morning. This will open tremendous synergies between India's one billion population and our 567 million people," he told Bernama on the sidelines of the Asean Energy Ministers' Meeting here today.

Surin said he was happy the deadlock over the issue of agriculture products from Asean members, which had hindered the success of the talks, had been finally solved.

"The FTA with India is Aseans fourth with a dialogue partner, following Japan, China and South Korea," said Surin, who was optimistic that similar negotiations with Australia and New Zealand could be concluded in the coming months.

Asean's Senior Economic Officials (SEOM) met their counterparts from India during the Asean-India Consultations being held during the 4th Meeting of the 39th SEOM in Brunei.

Surin said the FTA with India would offer vast business potential for both the world's largest democracy and the 10-member regional grouping which aimed to create its own European Union-style single market or Asean Economic Community by 2015.

Trade between India and Asean reached nearly US$20 billion (US$1=RM3.28) last year and is expected to grow to US$30 billion by 2010.

Asean and India had signed a framework agreement on comprehensive economic cooperation in October 2003, and negotiations were supposed to be concluded by June 2006.

The trade pact was initially scheduled to be effective on Jan 1, 2007 but differences over agriculture products remained unresolved until today's meeting.

According to previous reports, negotiations were stalled over India's refusal to roll back tariffs on petroleum, palm oil, pepper, tea and coffee in a bid to protect the domestic sector, while Asean members, especially Indonesia and Malaysia, had been pressing for more access for their palm oil exports to India.

At the initial stage, India, which adopted a free market economy in the early 1990s, issued a long exclusion list of 1,414 products in its bid to protect its sensitive agriculture and textile sectors, but later reduced it to about 560 products.

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Vietnam takes over India in apparel exports to US

NEW DELHI: After China, a small Asian country Vietnam has overtaken India in apparel exports to the lucrative US market, it shipped garments worth 4.76 billion dollars in May this year against India's exports of 3.14 billion dollars.

Out of the total 73 billion dollars annual imports by the US till May-end, Vietnam managed to capture 6.55 per cent share while China remained the largest exporter to the American market with 30.6 per cent share, a data released by the US Department of Commerce said.

Admitting tough competition from Vietnam, Confederation of Indian Textile Industry Secretary General D K Nair said: "Garment exports from Vietnam to the American market have shown an unprecedented growth of 36.39 per cent as compared to negative growth of 0.72 per cent from India in May."

On Vietnam's growth, he said cost competitiveness has given the country an edge over Indian exporters, who had been hit by rupee appreciation against dollar last year. However, the rupee has begun depreciating and situation might improve.

Industry insiders pointed out that a large number of Chinese manufacturers have shifted their base to Vietnam to benefit from low production costs there and it was pushing the country's apparel exports growth.

The neighbouring Bangladesh shipped garments worth 3.18 billion dollars to the US market while capturing a share of 4.37 per cent in the world's largest market.

Figures compiled by the US Commerce Department revealed that Mexico and Indonesia are also ahead of India, which stood at the sixth position in apparel exports to the US.

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Export sops withdrawal hits textile players

AHMEDABAD: Just about the same time when they thought that everything was working out in their favour, came yet another damper. Even as the Indian textile industry awaits imported cotton to ease the price pressure from the commodity in the domestic market, exporters anticipate poor economic policies to stifle their prospects in 2008. Trailing behind most of its Southeast Asian counterparts in terms of growth in exports to the US, the recent move by the government to withdraw interest rate subvention on export credit is set to stagnate the prospects of the textile industry in 2008.

Exporters who were benefited in the post-quota regime, took a beating in 2007 after the dollar began to slide. The Indian textile exports at $20.5 billion fell short of the $25-billion target. Despite a global slowdown and a slump in consumption in the US — the country consumes 30% of Indian textiles — exporters hoped to revive business in 2008 by tapping the fashion-driven European market where it grew by 2.8% in January 2008 over the previous January.

But, everything doesn’t seem to be in order for the textile exporters.

In what is understood to be a measure to check inflation, the Reserve Bank of India on August 1 called off the export incentives it declared earlier in wake of rupee appreciation, with effect from September 30. Under the interest subvention scheme, the exporters were compensated for reduced profits because of strengthening rupee last fiscal and got a near 4.5% relief in pre-shipment and post-shipment credit in various sectors, especially employment-intensive sectors such as textiles and handicrafts.

The withdrawal will set the manufacturing costs reeling under pressure from all fronts — high prices of cotton and man-made fibres and shortage of power in the sub-continent, and global recession making consumers shy away from new spends — and increase their burden to an extent that their competitiveness in the global textile market will be affected severely, textile secretary AK Singh said.

India has already lost out Vietnam, Bangladesh and Cambodia in terms of growth in the US market during January-May 2008 over same period last year. The Bangalore-based Gokaldas Exports, which is the largest exporter of Indian textiles, recorded a turnover of Rs 990 crore in 2007-08 with exports down 20%,“The government’s decision will further cripple the exporters. We are finding it difficult to pass on the price hike to our global buyers who have the option to go to Bangladesh, which has silently pulled the rug from underneath our feet, Orient Craft CMD Sudhir Dhingra said.

The Confederation of Indian Textile Industry has sought that the interest subvention be continued up to March 31, 2009 without any changes to sustain export competitiveness of Indian players vis-à-vis their Asian counterparts, said CITI secretary-general DK Nair. “Pakistan has announced R&D assistance at 6% for garments, while China has increased the rates of VAT refund from 9% to 13% for synthetic textile products and 11% to 13% for others,” he said.

CITI chairman PD Patodia echoed him, saying that the add-on costs will further worsen the situation.“Exporters with pending orders cannot go back on their quotations despite the fact that the move to waive off interest rate subvention on export credit will directly add to their input costs. At a time when the industry is working out measures to cut costs and increase productivity, this move will be detrimental,” associate director, Technopak Advisors Pvt Ltd, Prashant Agarwal, said.

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