New Delhi: The commerce and industry ministry and an export lobby group have asked the finance ministry to extend an interest rate subsidy of 2 percentage points that some exporters are eligible for.
Mint couldn’t immediately ascertain whether the finance ministry would consider this suggestion favourably and whether this extension would find mention in the Union budget that is to be presented on 6 July.
The interest subsidy scheme is to end on 30 September and extending it will help exporters access cheap credit and remain competitive in a year when global trade is projected to contract by 9.7%.
While exporters lobby Federation of Indian Export Organisations (Fieo) has asked for an extension of the scheme till 31 March 2012, the commerce and industry ministry has recommended that it be extended till 30 September 2010. “We have asked the finance ministry to extend the scheme by another year,” said a senior official at the commerce and industry ministry who did not want to be identified.
Exporters are usually provided credit at a rate that is around 2.5 percentage points below the prime lending rate (PLR) of banks. PLR is the rate at which banks lend to their most credit-worthy customers. The government started providing an additional subsidy of 2 percentage points to exporters in specific sectors from April 2007 to offset the steep appreciation of rupee which led to losses by exporters. However, the government also said that the discounted interest rate after all subsidies should not be lower than 7%, the rate at which banks lend money to farmers.
Fieo claims that the actual interest rate for exporters in India is still very high compared with Europe and South-east Asia where credit is available, at rates lower than 5% sometimes. “We have asked the government to provide credit to exporters at a flat rate of 7%. If it is not possible, then we have asked the government to provide export credit at 400 basis points below PLR (instead of 250 basis points at present) as we expect PLR of banks coming down over a period of one year,” said Ajay Sahai, director general, Fieo. A basis point is one-hundredth of a percentage point.
Sahai added that Fieo is also lobbying the government to include exporters in businesses such as plantations, engineering and pharmaceuticals in the interest subsidy scheme.
Currently, exporters in labour intensive sectors such as textiles, handicrafts, carpets, leather, gems and jewellery, marine products as well as small and medium entreprises are provided interest rate subsidy.
India’s merchandise exports contracted for the seventh month in a row in April on weak demand from developed countries, where consumers and businesses are cutting spending in the midst of one of the worst recessions ever.
India’s new commerce and industry minister Anand Sharma, said soon after taking charge that he expects exports to stay flat this year at $168 billion (Rs8.1 trillion), which he described as an achievement given that global trade is projected to substantially contract. Sharma had also said that more incentives for exporters would be announced in the budget and the foreign trade policy, the latter scheduled for August. Commerce secretary Rahul Khullar has said he expects external demand to improve towards September or October this year.