New Delhi: The Union commerce and industry ministry is recommending a package of fiscal measures to help India’s exports combat the adverse impact of the recent appreciation of the rupee against the US dollar.
Commerce minister Kamal Nath also said his ministry would soon set up a committee, which would include representatives from the labour ministry and Indian Institute of Foreign Trade, to assess the potential job loss on account of the appreciating rupee.
The committee would be asked to submit its report within a month, he added.
The fiscal measures include hiking rates on the refunds exporters get for indirect taxes under schemes such as Duty Entitlement Passbook Scheme (DEPB); bringing down interest rates on shipment credit given to exporters and a 10% reduction in the premium charged by the Export Credit Guarantee Corporation on its insurance packages.
The finance ministry would now have to decide whether it would absorb the revenue losses implicit in the fiscal measures suggested by Nath to mitigate the impact of the rupee’s recent movement.
On earlier occasions, the finance ministry has discouraged fiscal exemptions meant to help a target group. In fact, it is yet to issue a notification on the foreign trade policy announcement exempting exporters from the purview of service tax. Nath, however was optimistic, saying, “When two ministries don’t agree there is a process in the government (it could be escalated to the Cabinet or the Prime Minister’s Office).”
“The proposal to hike the DEPB and drawback rates will greatly help in restoring the competitiveness of Indian exporters which have become uncompetitive to the extent of 10-12% in international market as a result of the rupee’s appreciation” said Amit Mitra, secretary general, Ficci, in a media statement.
The rupee’s appreciation would not impact the current year’s export target of $160 billion, but will lead to job losses in traditional areas of exports, claimed Nath.
However, some of the industries, which presented their case to the commerce ministry, said they would fall short of the current year’s export targets if the rupee continued to appreciate further.
If the rupee’s value against the dollar falls below Rs40, engineering exports growth rate in the current year would be negative in dollar terms, said the Engineering Export Promotion Council. It was around $26 billion in 2006-07.
Nath and the Federation of Indian Export Organisations, at a joint press conference sought to project the possibility of job losses as the largest threat if the rupee maintains its current level of about Rs40.77 against a dollar.
Federation president Ganesh Kumar Gupta said, “We will lose roughly eight million jobs this year. The worst hit will be leather, textiles, chemicals and gems and jewellery.” The aggregate employment, direct and indirect, among all export units in the country is around 100 million, he added.
About 63% of India’s $125 billion exports in 2006-07 is sourced to small and medium enterprises (firms with a turnover of up to Rs100 crore). Most of them do not have the resilience to withstand a sharp upward movement in the rupee’s value against the dollar, and their competitiveness would erode, said exporters from the Federation.
The rupee has appreciated 7.52% over a eight week period ended 1 June, when it touched Rs40.54. According to the commerce ministry, the primary reason for the appreciation is because the Reserve Bank of India’s has stopped intervening in the foreign currency markets to mop up excess dollars since April.
Currently, the realizations out of exports have been falling, while the cost structure has not changed. Consequently, profitability has begun to fall and some of the vulnerable units have begun to lay off workers.
“About four-five million workers have lost jobs over the last three months,” said Gupta.