The Indian rupee (INR) has been appreciating rapidly, nearly 12% since January 2007 and touching 39.27 against USD (US dollar) earlier this month, its highest since March 1998. It is a well known fact that INR appreciation has affected almost all sectors of the economy and dented our export growth. It has been proved beyond doubt that RBI has not been actively intervening in the forex market to check INR appreciation mainly on account of inflation worries.

INR appreciation took an ugly turn around the last quarter, resulting in thousands of job cuts. India’s two top garment exporters cut between 5,000 and 6,000 jobs in the last quarter. The Tirupur garment industry workers are also facing the same threat - approximately 60,000 job cuts are feared by the end of this financial year.

It is needless to say that almost all currencies of the emerging economies have appreciated against the USD since 2007. But, on this pretext, the Indian government cannot afford to sit idle even as the country’s exporters continue to bleed dry.

Since July 2007, the government has announced fiscal packages to exporters battling the INR appreciation. It all started in July 2007 when the government announced an INR 1,400-crore package comprised of fiscal sops for exporters.

For example, it provided relief from service tax to exporters. On Oct, 6 the government announced some more relief measures which included payment of interest on EEFC (Exchange Earner’s Foreign Currency) account, cheaper pre-shipment and post-shipment credit.

According to the finance minister, the government is concerned with the rapid appreciation of INR and has responded swiftly by giving them (exporters), on different occasions, relief packages aggregating Rs 5,000 - Rs 6,000 crores.

But the biggest question here is whether these sops are adequate enough in the light of India eyeing an export target of USD160 billion and the INR appreciating by almost 12% since 2007. Many experts opine that these export sops are grossly inadequate considering the impact of INR appreciation.

On many issues relating to export sops, there is a cold war on between the finance ministry and commerce ministry. This cold war is evident from the following two aspects: One, the finance ministry has so far notified seven services that qualify for tax exemption, while the commerce ministry sought exemption in respect of 16, to save exporters hit by a sharp appreciation in INR.

Two, the commerce ministry’s proposal that import duty remission through the DEPB scheme be replaced by the Duty Drawback scheme, provided certain State-level taxes are refunded to exporters, is hanging fire.

While the revenue department has refused to refund the State-level taxes, the commerce department has decided to send the proposal to the Cabinet. Ministry officials say the Cabinet will take a final call on the issue.

This is the right time for the government to think of something beyond sops to save our exporters. It should come out with some permanent solution to the problem. It should think of protecting the interests of both the parties to the issue - the exporters, who face the heat arising from INR appreciation and importers, mainly oil importers, who are making a killing out of INR appreciation.

On its part, the government should take into account inflation worries and foreign investments, keeping in mind the rapidly-approaching general elections. Performing the difficult balancing act is the need of the hour for the government.

Ms. Akash Menon

(Tradeindia Expert)

M/S Menon Exports and Designing Ltd.

MD, M/S Menon Exports and Designing Ltd.
New Delhi, India