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More relief for exporters to tide over rising rupee

NEW DELHI: In a bid to provide succour to the exporting community which has been clamouring for relief against the unabated rise in rupee against the U.S. dollar, the Centre on Saturday enlarged the scope of service tax refund to exporters and also expanded the list of sectors eligible for lower interest rates on pre-shipment and post-shipment credit.

Alongside, exporters will be able to earn interest on their foreign currency accounts which will go a long way in mitigating their hardships emanating from the appreciation of the rupee.

Henceforth, exporters will be refunded the taxes paid on seven services as compared to the four services permitted earlier.

The three new services being included in the tax relief scheme are: general insurance, technical testing and analysis, and inspection and certification. Last month, the Centre, it may be recalled, had announced exemption of tax on services rendered by ports, road transport and railways.

As a further relief to exporters, the Government has also permitted payment of interest on amounts up to a maximum of $1 million kept in ‘Exchange Earners Foreign Currency’ (EEFC) accounts. However, the rate of interest to be paid on such deposits is to be decided by the banks. The facility of interest payment, according to a Finance Ministry statement here, would be valid up to October 31, 2008. “Such accounts should be in the form of term deposits, with a maturity of one year,” the statement said.

These measures are expected to provide partial relief to exporters whose business margins have been eroding on account of the rising rupee. In particular, the rupee appreciated to a record high of Rs. 39.36 to a dollar, the highest ever since March 1998.

As for the relief on pre- and post-shipment credit, a total of 12 sectors have been made eligible for the reduced interest rate which is 4.5 per cent below the benchmark prime lending rate (PLR). The beneficiary sectors now include textiles with handloom, jute and carpet, readymade garments, leather products, handicrafts, engineering products, processed farm products, marine goods, sports goods, toys, solvent extracted de-oiled cakes, plastic and linoleum and small and medium enterprises (SMEs).

In a separate development, the Prime Minister, according to the Commerce and Industry Minister, Kamal Nath, has asked the Economic Advisory Council Chairman, C. Rangarajan, to suggest more ways of helping exporters, apart from asking him “to submit a report on slowdown in industrial activity within a month.”

Mr. Kamal Nath noted that while he was happy with the relief measures announced by the Department of Revenue, his Ministry would continue to press for further steps that were required for “other employment generating sectors”. In fact, certain export sectors which do not have any import content such as minor forest produce and food processing were impacted the most on account of the rupee appreciating to a nine-year high.

Hailing the relief measures, the Federation of Indian Export Organisations (FIEO) President, Ganesh K. Gupta, said: “It is a positive step, but much remains to be done”. The hint was towards the sunrise pharmaceutical sector which, he felt, should also have been included in the relief package.

Incidentally, the notification on service tax exemption for exporters has come nearly six months after Mr. Kamal Nath had announced the Government’s intention in this regard while releasing the April supplement of the annual Foreign Trade Policy.

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