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%.