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FM to study exporter demands on cheaper credit, DEPB
November, 16th 2007
Even as finance minister P Chidambaram gave a patient ear to textile exporters on examining the proposal to provide for interest subvention on loans, he also asked them to hedge their exposures against currency appreciation.

Mr Chidambaram is understood to have given assurance to exporters to examine their demands. Exporters want a lower rate of interest at 6% on short-term credit, reimbursement of state levies and higher duty entitlement pass book (DEPB) scheme and drawback rates.

However, bankers present at the meeting were of the view that interest rate component was only a small part of the larger problem faced by the textile exporting community with exports of up to $13-14 billion annually.

Bank of India chairman T S Narayanasami said, There is an erosion in profitability for export-oriented units (EOU) due to the dollar-rupee parity. Exporters are of the view that high interest rates is further aggravating the situation.

Interest rates have moved up across the industry segments and logically for this sector as well. Banks will have to examine whether further interest subvention will really help the sector, he said pointing that interest rates are only a small problem given the nature of other issues that exporters face. Banks are currently lending 4.5% below PLR to the textile industry at around 8%.

The government has already announced relief measures for exporters, aggregating to Rs 5,000-5,500 crore first in July and then in October. The package included a 2% interest subvention for pre-and post-shipment credit and payment of interest on exchange earners foreign currency (EEFC) accounts. They have also been given exemption on service tax on seven items for exports.

While agreeing to look into exporters demands, finance minister also wants them to brace for a strong rupee. The government has already increased the ceiling of the market stabilisation scheme which is managed by the central bank to intervene in the exchange market.

A large number of exporters have short gestation periods and are unable to hedge exposure for such duration less than a year. Typically, only the bigger exporters with a period of supply beyond 1 year, hedge their exposure. But going forward all exporters need to enter into forward contracts to mitigate the impact of a strengthening rupee, a government official said.

The rupee has risen almost 12% against the dollar in 2007, making imports cheaper but hurting exports. In rupee terms, exports have risen only 5.34% during April-October this year.

Textile industry enjoys interest subvention. The rate of interest charged is 8% or more. We have proposed that this should be brought down to 6%, Cotton Textiles Export Promotion Council chairman Prem Malik said. Exporters should be permitted to stagger loans, further, a flat rate should be used for both preshipment and postshipment for 360 days, he added.

Exporters also sought relief on duty drawback, reimbursement of state levies as well as extension assistance given under schemes like MDA.

There are power problems faced by textile units. I hope the government provides subsidy on this account. Interrupted power supply, increases our costs of production, another exporter said. We feel that Market Development Assistance (MDA) should be extended uniformly to all categories of exporters, M S Mathivanan, Powerloom Development and Export Promotion Council said.

State Bank of India chairman O P Bhatt, Bank of Baroda chairman A K Khandelwal and Canara Bank chairman M B N Rao were also present at the meeting.
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