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After months of indecision and lengthy parlays, the government seems to have finally come up with some damage-control measures to help exporters tide over the problems caused by the sudden strengthening of the rupee against the dollar. These relief measures can at best bring some temporary relief to exporters who have been rightly sending SOS messages to the Commerce Ministry to take up the case. It's an undeniable truth that a stronger rupee hurts not only the exporters, but also the domestic manufacturers who have to cope with imports that have become cheaper due to lower Customs duty rates and dollar depreciation.
Rightly for now, the drawback rates have been raised by 2 percent to 3 percent in absolute terms for the targeted sectors. The value-caps have also been raised. Also the Duty Entitlement Pass Book (DEPB) rates have been raised for items in the targeted sectors by 2 percent to 3 percent.
However I feel that the DGFT should also order issue of DEPB for the difference without any need to furnish fresh supplementary applications.
The Reserve Bank has issued instructions to banks to grant export credit at concessional rates within a ceiling of 4.5 percent below prime lending rates for sectors such as textiles, readymade garments, leather products, handlooms and handicrafts, toys and all small and medium enterprises, in effect, all units that have an investment in plant and machinery up to Rs 10 crore. Let's hope the banks fall in line in accordance with the RBI's recommendations. Implementation is the key!
However the measures fell short of the exporters' recommendations for 5 percent increase in drawback and DEPB rates, reimbursement of service tax on services relating to exports, and reduction of premium on export-credit guarantees. Moreover in actual terms, the size of this package is Rs 800 crore because Rs 600 crore of the Rs 1400 crore relates to speedy reimbursement of deemed export dues such as refund of terminal excise duty, central sales tax, etc.
Interestingly, the whole episode gives the impression that the government and Reserve Bank have no clear idea on how to cope with the strong inflows of foreign currency. I also get a feeling that had there been a better coordination between the government and the Apex Bank, they could have helped exporters and importers take up foreign exchange exposures with greater certainty.
Despite these measures I strongly feel that there has to be a permanent solution to this vexed problem since it is bound to arise fairly regularly in the days to come. I think the government has to find ways to compensate the exporters, disadvantaged by an non-existent infrastructure. And whenever the rupee appreciates, should pass on to them the savings achieved on the imports in the form of cheaper funds. The government generates at the most 1.5% (net of hedging expenses) on a part of the huge forex reserves that it invests in USD-denominated securities. Surely it can generate much more than that if it lends even a fraction of the said investment to our exporters and importers at 5%. It makes sense!
Dear Mr. Bikky Khosla
I always read your comments about Indian exporters difficulties and it is very interesting to see how they are exactly the same faced by Brazilian exporters. Three of the problems you have listed today are daily on the pages of our newspapers too: the strengthening of the real, strong inflows of foreign currency and a non-existent infrastructure. Exactly the same.
Please take a look at the dollar exchange rate at this same date on the last four years and think about our exporters situation:
July/16/2004 - R$ 3,0021
July/17/2005 - R$ 2,3427
July/15/2006 - R$ 2,2126
July/17/2007 - R$ 1,8621
This year, from January up to May, US$ 46,1 billion have entered in Brazil and yesterday President Lula said that he is going to "wait, with much patience, that the dollar adjusts itself".
Best regards for you, Mr. Khosla. Continue with your excellent articles.
Free Member, Joined :06/04/2003
No of Topics Posted : 0
Reply/Comments : 2
I visited India recently and stayed for two months, mostly in Delhi, but I visited several cities like Moradabad, Haridwar, Jaipur, Nainital, Rishikesh etc. etc.
I did not find any changes in the infrastructural structure of any city other than Delhi.
Most people have more problems with electrical load shedding, drinking water shortage and corruption at every step, especially in police and public dealing places. The attitude of general public has not changed too.
The corruption is eating the progress in India like a termite.
In my opinion, in general Police is not for the protection of life, property and security of the citizens, but they are looking for an opportunity to trap people so that they can fill their pockets.
The acute shortage of electricity is a big obstacle in the progress of industrial, agriculture and GDP of India.
A severe shortage of supply of quality water is damaging the health of the nation.
A feeling of security is not there while Traveling from A place to B.
I believe, a stern control is required to make effective changes from top to bottom.
Free Member, Joined :03/08/2004
No of Topics Posted : 0
Reply/Comments : 1
I think Mr. Bikky is absolutely correct in his views. The government has to, in the near future, come up with permanent solutions for this problem. Being a developing economy, the rupee will always remain volatile. This is a sign of a growing economy. I think the government should think in terms of finding ways to make manufacturing less costly. This will help exporters to lower the prices of their products and in the same time keep the rate of profits intact.
Dear Mr. Bikky Khosla,
I have read "Permanent relief to exporters needed". And understand it.Thank you!
Shandong Gaomi Yongsheng Labor Protection Co., Ltd.
Gaomi, China
Free Member, Joined :07/23/2007
No of Topics Posted : 0
Reply/Comments : 1
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