Govt may reintroduce interest subsidy for small exporters

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With many export promotion schemes hanging fire, the Government is considering reintroduction of the interest rate subsidy regime for small and labour-intensive exporters.

Sources said the Government is considering a proposal to bring back the 2 per cent interest subvention scheme soon and possibly with retrospective effect from April 1, 2011. The Finance Minister and the Commerce and Industry Minister are scheduled to meet on May 30 in this regard.

Exporters had complained that the withdrawal of the interest subsidy from April 1, 2011 has resulted in the rate of pre and post-shipment export finance increasing by over 50 per cent.

According to the Federation of Indian Export Organisations (FIEO), the net interest rate on pre and post-shipment rupee credit to exporters has gone up from 7 per cent (with the 2 per cent interest subsidy) on April 1, 2010 to 10.75-11.25 per cent on May 12, 2011 (after the interest subsidy was withdrawn on April 1, 2011).

The FIEO is demanding export credit at 7 per cent for small and labour-intensive sectors and 9 per cent for other exporters. Export credit as a percentage of net banking credit has fallen from 9.8 per cent on March 24, 2000, to 4.1 per cent on December 31, 2010, it said.

The FIEO had cautioned that the rising interest rates would make the products from the small and labour-intensive sectors uncompetitive in overseas markets, especially since their Asian counterparts are getting credit at rates as less as 5 per cent.

Any slowdown in the micro/small scale sector would affect exports and employment as it accounts for half of the country's total exports and directly contributes to over 60 million jobs, the FIEO said.

Mr Ramu S. Deora, President, FIEO, said he has written to the Prime Minister, the Finance Minister and the Cabinet Secretary on the issue. He said it will be tough to achieve the Government's ambitious target of doubling exports to $500 billion by 2013-14 if exporters are burdened with high interest rates.

The popular Duty Entitlement Pass Book (DEPB) scheme is due to end on June 30 and the Finance Ministry is against giving it any extension.

Sources said the Government is considering a hike in all-India drawback rates. Exporters also pitched for continuation of the DEPB scheme till the introduction of the Goods and Services Tax.

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