Cheap Credit Other Sops for Even Large Exporters Likely

Union cabinet is likely to consider this week an interest subvention scheme to provide cheaper credit to exporters & expansion of the Merchandise Exports from India Scheme

The government may extend export incentives such as cheap credit to even large players in sectors like pharmaceuticals, chemicals and electronics, in a desperate bid to revive the sector after nine straight months of exports fall due to weak global demand and overvalued rupee.

The Union cabinet is likely to consider this week an interest subvention scheme to provide cheaper credit to exporters and expansion of the Merchandise Exports from India Scheme (MEIS), an official privy to developments told ET.

In the first five months of the current fiscal, exports fell 16.17% year on year, impacting the country's industrial growth as well as employment in a number of sectors, setting alarm bells ringing in the commerce ministry . While the ministry had moved a cabinet note on this last month, the Cabinet could not take it up due to Prime Minister Narendra Modi's US visit.Now that Modi is back in town, the proposal is expected to get Cabinet nod in its first meeting, said the official who requested not to be named.

Commerce minister Nirmala Sitharaman and commerce secretary Rita Teaotia met finance ministry officials recently to seek fast-tracking of the interest subvention scheme--whereby banks provide credit to exporters at subsidised rates for which they are later compensated by the government--and expansion of benefits under MEIS. The ministry has proposed interest subvention for a period of three years for both the existing sectors and, for the first time, new ones such as pharmaceuticals, chemicals and electronics, which are dominated by big companies.

“Till now, medium and small enterprises were eligible for interest subvention but now, the proposal talks of large manufactures in the chemical and pharmaceutical industries,“ the official said. In the 2015-16 Budget, finance ministry had allocated Rs.1,650 crore for the interest subvention scheme for exporters for the year.

The previous 3% interest subvention scheme was available up to March 31, 2015 for sectors including apparel, carpets, handlooms, sports goods, handicrafts, toys, and some engineering products.

The rate offered under the scheme in 2013-14 was 2%.

Experts said if approved, the scheme would give a muchneeded fillip to exporters as the country's exports have declined for nine straight months and more than half the exporting sectors are reeling under pressure from slowing global demand and declining prices.

“The export situation is pretty bad and the government will have to provide some support because both value and quantity of exports have declined,“ said D K Joshi, chief economist at rating agency Crisil. “Real exports are down 6.5% in the first quarter and things might be worse in the second quarter. Labour-intensive sectors like textiles and gems and jewellery and knowledge driven sectors like pharma will need more focus,“ Joshi said.

Also, estimates suggest that exports in 2015-16 might be lower than shipments worth $310 billion, or about Rs.20 lakh crore, achieved in the previous fiscal.According to the government officials quoted earlier in their meeting with finance ministry officials the commerce department had “also asked for reduction in transaction costs and increase in duty drawbacks for steel sector which has seen two duty hikes this year“.

Commerce secretary Teaotia has also called a meeting of all export promotion councils on October 7 to discuss issues related to decline in exports of various commodities from India, the official said.

The slowdown in China has impacted global trade, but India seems to have been hit harder because of a stronger currency relative to its competitors.

The Economic Times, New Delhi, 5th Oct. 2015